Winnipeg Commodity Exchange: Initial Performance In Revised Feed Wheat Contract

Feed wheat futures have been trending downward over the past few months with active trade activity observed throughout February 2001. The average volume for the month, including exchange-for-physicals (EFPs), was in excess of 22,100 tonnes per day (1,108 contracts per day). After peaking in December 2000 at $152.00/tonne, the nearby price trended lower through to the end of February, and ended the month at $140.20/tonne, only slightly above the low for the month of $138.00/tonne. The old-crop/new-crop spread is showing a significant inverse, in sharp contrast to the carry observed in western barley and U.S. coarse grain markets. The inverse is a function of revised contract terms, which are effective with the new crop months.

The revised feed wheat contract was introduced on February 14, 2001 with the listing of the Oct 01 and Dec 01 contracts. The changes made to the feed wheat contract are intended to make the futures contract more reflective of the underlying domestic feed wheat market throughout Canada.

One of the most significant changes is a move in the pricing point from an in-store Thunder Bay location to a F.O.B. value at Par region locations. The Par region is an area in central Saskatchewan (see WCE website for a map). This means that the new contract pricing will no longer include rail freight costs for moving feed wheat to Thunder Bay or weighing, inspection and cleaning costs associated with moving product into an in-store Thunder Bay position.

The deliverable grade specification was redefined to more accurately reflect the bulk of the activity in the underlying cash market. The new grade specification now includes a minimum weight of 352 grams per half litre for all deliverable classes of wheat and a maximum of 2% fusarium content. Other changes to the contract design include modifications to the delivery mechanism, which are expected to improve the convergence of cash and futures values.

Since the introduction of the newly designed feed wheat contract the average daily volume for the new crop Oct 01 and Dec 01 contracts combined has been approximately 540 contracts per day. On its first day of trade the Oct 01 feed wheat futures settled at $120.70/tonne, $28.30/tonne under the May 01 feed wheat contract. The Oct 01 contract closed the month at $121.00/tonne, $23.80/tonne under the May 01 contract.

Please refer to WCE website or contact WCE for additional information regarding the revised WCE feed wheat contract.