No Interest in Field Pea Futures

WINNIPEG - Mar 23/00 - STAT -- The Winnipeg Commodity Exchange's field pea futures contract crossed a threshold rarely seen in futures markets this week.

The contract opened Thursday with no open interest whatsoever and finished the week's session with no trades even though relatively aggressive bidding pushed up the October and December contracts during Friday's afternoon session.

The current contract is the exchange's second effort to cash in on continued expansion of Canada's specialty crop industry. But even with seeded area routinely exceeding two million acres and production averaging 2.1 million MT the last three years, there is no obvious interest in hedging field peas.

Western Canadian growers are typically minor participants in futures markets. It is not unusual to see the majority of trading volume generated by commercial and speculative interests.

Several factors make it hard for trading to get going.

Most commercial participants do not see a valid reason to transfer hedging activity from their informal futures market to one controlled by individuals who are not stakeholders in their industry.

A viable futures trading mechanism exists in commercial cash markets, with any individual demonstrating an ability to pay for product capable of participating. Field peas are commonly traded many months in advance, with most forward contracts covering 60 day delivery periods.

One key difference between using the commercial trade to forward sell, speculate or hedge product and using the Winnipeg Commodity Exchange is market participants do not need to provide a margin deposit on trades made between themselves. This allows companies to continue using their money for day to day operations even when a future sale or purchase is losing money.

Using futures markets has the advantage of allowing companies to buy and sell, only losing or earning the difference between the value of the initial contract and off-setting contract, without needing to get involved with the physical merchandise. This does not work well with field pea futures contracts. Liquidity is so thin people expect to make or take delivery.

This is not a problem for specialty crop traders. It is a major problem for speculators and growers. Unfortunately, without the participation of dentists, lawyers and other speculators futures markets don't work.

If this did work, it would be an advantage over the forward cash market used by the specialty crop industry. All participants in a trade, no matter how long the chain of companies, are involved in passing shipping instructions, documents and the full value of each individual contract across the links. This can be inefficient and result in serious problems.

Contract defaults and arbitrations can disrupt part of the chain if any individual does not urgently forward shipping instructions, tender advices or documents to their buyers and suppliers.

Certainly, there is a need for some of the advantages provided by traditional futures markets in the specialty crop industry, but current efforts are likely to fail because they do not offer a good enough combination of feautures found in both markets to attract most of the industry's protagonists.

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