Bloomberg News

ICE Wheat-Market Bid Slowed by Canada Growers’ Fight With Harper

January 24, 2012

Jan. 23 (Bloomberg) -- IntercontinentalExchange Inc.’s bid to profit from Canada’s first open markets for wheat and barley in seven decades may be hindered as some farmers seek to retain a monopoly on grain sales.

Contracts for milling wheat, durum and barley are set to start trading today in Winnipeg, competing with U.S. grain markets, as Prime Minister Stephen Harper’s Conservative government prepares to end the Canadian Wheat Board’s control over most crop sales. Canada is the world’s fourth-largest wheat exporter, with revenue of C$5.8 billion ($5.7 billion) from wheat and barley last year in the main growing regions.

Eight of the Wheat Board’s former farmer-directors, ousted Dec. 15, filed a lawsuit in Winnipeg asking a judge to block the federal government’s plan to end the monopoly on Aug. 1. Until the court case is resolved, trading in the new ICE contracts may not amount to much, said Jamie Wilton, a senior commodity futures specialist for brokerage ScotiaMcLeod in Winnipeg.

Commercial buyers “will start trading the contracts very lightly to begin with, until we can put this court battle behind us,” Wilton said by telephone. “Everybody is just hesitant to do too much of anything right now until this dies down.”

Winnipeg’s Court of Queen’s Bench, which heard the case Jan. 17 and Jan. 18, may release its decision this week, said Bill Toews, a farmer from Kane, Manitoba, and one of the former Wheat Board directors who are plaintiffs in the case. The group also filed a federal court motion last week asking a judge to quash a government appeal to a Dec. 7 ruling, which said the Agriculture Ministry should have conducted a vote among farmers before eliminating the monopoly in a law passed last month.

Implement Law

Agriculture Minister Gerry Ritz has said that the government will implement the legislation regardless of whether the court grants an injunction against it, and that the ministry wasn’t required to conduct a farmer plebiscite. The Wheat Board carried out its own vote in August, in which 62 percent of wheat farmers and 51 percent of barley growers voted to retain the monopoly.

“It’s disappointing that misguided legal action against Western Canadian farmers has caused some uncertainty in the industry,” Ritz said in an e-mailed statement in response to Bloomberg questions. “What farmers and the industry can be certain about is that the Marketing Freedom for Grain Farmers Act is now law, and our government will not stop defending their right to freely market their wheat and barley beginning Aug. 1.”

Competing Markets

ICE’s new contracts, priced in Canadian dollars and measured in metric tons, may compete with spring-wheat contracts on the Minneapolis Grain Exchange traded in U.S. dollars by the bushel. Spring varieties, planted starting in April and harvested beginning in August, make up the majority of wheat grown in Canada. MGEX said Jan. 19 that it is removing by September a provision in its spring-wheat futures contracts that requires delivery of only U.S. grain.

“There’s room for both markets,” Helen Pound, a senior commodity analyst at Penson Futures in Minneapolis, said in a telephone interview. “If you add the volume grown in Canada to the U.S. spring-wheat crop, it becomes a bigger crop than the U.S. hard, red winter crop. So, there’s potential for a large amount of volume.”

Wheat trading has surged in North America. More than 2 million spring-wheat contracts changed hands in Minneapolis during the year through Aug. 31, a record, exchange data show. The Kansas City Board of Trade reached an all-time high of 6.582 million hard, red winter wheat contracts last year.

Prices Down

Prices on the Chicago Board of Trade, home to the world’s most-traded wheat contract, are down 25 percent in the past year, mostly because of rising global production as farmers harvested bigger crops in Australia, India, Russia and Ukraine.

The Winnipeg Grain Exchange, owned by Atlanta-based ICE since 2007, traded wheat futures from 1904 until 1943, when the Wheat Board’s monopoly began. The exchange traded some feed- grade wheat from 1974 to 2008, according to spokesman Lee Underwood, who declined to comment on how the lawsuit will affect the new contracts. ICE Futures Canada also currently trades feed-grade barley and canola.

Rolf Penner, a third-generation farmer who has about 1,900 acres in Morris, Manitoba, said he hasn’t sold any of his wheat for delivery after Aug. 1, because buyers seem reluctant to boost bids. Penner, who was in favor of ending the monopoly, said he expects prices paid to farmers will rebound after the court cases are resolved.

Withholding Sales

“I’ve got some offers, but I’m looking for some price targets which we haven’t quite hit yet,” Penner said. Grain buyers may be “pricing in some extra protection on their prices right now, just in case this thing goes the other way. There is a risk with this legal wrangling that’s going on, but once that gets settled, we’ll see that risk go away, and I think we’ll see prices be a little more competitive.”

In 2007, the government attempted to remove barley from the Wheat Board’s monopoly, after 62 percent of farmers in a plebiscite in western provinces voted in favor of opening the market. A federal court ruling later struck down the government’s plan because changes to the Wheat Board weren’t first approved by Parliament.

Toews, the former Wheat Board director, said the government should delay implementation of the law until the courts decide. Merchant Law Group LLC, a Regina, Saskatchewan-based law firm, has said it is starting a national class-action lawsuit against the government over Canadian Wheat Board assets. The former directors are not planning a class-action lawsuit “at this time,” Toews said.

‘Minister’s Lap’

In the markets, “this uncertainty was created by the Minister himself,” Toews said in a telephone interview. “That, in our opinion, is where the uncertainty lies, in the Minister’s lap.”

The Wheat Board’s monopoly covered the provinces of Manitoba, Alberta, Saskatchewan and part of British Columbia, and required farmers in that area to sell all wheat and barley for human consumption to the Board. The region produced about 22.739 million metric tons of wheat in the year ended July 31, about 90 percent of the nation’s total supply.

--Editors: Steve Stroth, Thomas Galatola

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus