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WCE Field Pea Contract In Review

Date 06/11/2001

The Dec 01 field pea contract ended the month at $182.00/tonne, $0.50/tonne lower than the contract high of $182.50/tonne that was set on September 20, 2001. The upward price trend of the Dec 01 contract that began in late July, reflects the underlying cash market (Chart 1), and suggests prices are acting to ration supplies of a smaller than expected crop of feed peas.

Despite a record 3,610,000 acres being seeded to field peas this crop year (2001/02), production fell to 2,175,400 metric tonnes (these figures compare to 3,065,000 acres seeded in the 2000/01 crop year that produced 2,864,300 tonnes). While total usage is expected to drop to 2,251,611 tonnes in 2001/02, compared to the previous crop year (2000/01) of 3,069,300 tonnes, it is forecast that 2001/02 stocks will be drawn down by the end of the crop year to just 118,789 tonnes which represents a stocks/use ratio of 5.3%, the lowest level in the past three years (Chart 3).

The direction of prices for the remainder of the marketing year is less clear. The increase in the price of field peas so far this year has largely been the result of a smaller than expected crop and the strength of the edible pea market. However, the price of Canadian field peas is also dependent on the feed market which is currently substituting less expensive ingredients such as soymeal and other feedgrains for field peas (Chart 2). With field pea prices becoming uncompetitive to other substitutes there is a general consensus that it will be difficult to execute new business at current price levels. This helps explain the widening of the cash to futures price basis in October at a time when existing forward cash sales were likely already covered. The current situation suggests that prices will continue to be volatile in the coming months.

The revised WCE field pea futures contract has demonstrated its' effectiveness with a strong correlation to the underlying cash prices, thereby providing an effective hedging vehicle for market participants. The current market situation demonstrates the potential for field pea price volatility and the opportunity that WCE's field pea futures contract provides for effective price risk management.

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                             1999          2000          2001f

Production           2,252         2,864         2,175
Total Supply        2,627         3,264         2,370
Exports                1,644         2,300         1,486
Total Usage         2,227         3,069         2,252
Ending Stocks         400            195            119

Note: figures are in \000 tonnes (f=forecast, October 5, 2001)
(Source:STAT Market Research based on data from Statistics Canada)