Can Canadian origin grain be priced against U.S. futures contracts?
Yes, it is likely that U.S. companies can use U.S. future contracts to hedge purchases of wheat, durum and barley within the constraints of their risk management policies. Sellers of Canadian grain wishing to deliver to a U.S. buyer are advised to discuss pricing options and policies with their buyer prior to entering into a contract.
In August 2011 the Minneapolis Grain Exchange (MGEX) removed its U.S. origin requirement for its hard red spring wheat (HRS) contract, making it possible for Canadian wheat to be used as deliverable supply. The CME Group (Chicago Board of Trade) has created several options-based tools to serve this population, including MGEX-CBOT wheat spread option. The Kansas City Board of Trade (KCBOT) offers a contract based on hard red winter (HRW) wheat. It is a close second to the MGEX contract in terms of the quality of the deliverable wheat. This wheat, which is also used in bread baking, has a high protein level, but not as high as the HRS wheat grown in the U.S. northern plains or Canada. HRW wheat is grown predominantly in Kansas, Nebraska, Oklahoma and the Texas panhandle.
KCBOT has not made changes to its contract in anticipation of the new Canadian Wheat Board policy, but the exchange is likely to continue to be a very important venue for liquidity and price discovery of wheat grown in both Canada and the U.S. as well as the rest of the world. More information can be found at: