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An analysis of the feasibility of establishing a Pacific Northwest white wheat futures contract

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  • Individuals in the soft white wheat industry in the Pacific Northwest are looking for new marketing tools which will be helpful for their operations and reduce some of their risk. During the past 18-24 months their interest has centered on the commodity futures market, where they would like to see a wheat futures contract established that would offer adequate hedging potential for the Pacific Northwest. Two conferences have been sponsored (May 25, 1971 and July 7, 1971) at the Dalles, Oregon, by the Oregon Wheat Growers League to discuss this topic. For an objective analysis of the desire and need for such a futures contract and of its potential for success, data on supply, demand, and prices were helpful but not entirely adequate. An industry questionnaire similar to the questionnaire technique (Delphi) developed by RAND corporation for forecasting future technological changes was used. The results were two-fold. Other than just forecasting technology and target dates, the Delphi technique probed opinions and attitudes of the industry. It was determined that the demand for soft white wheat is changing. Some countries are reducing their demand while other countries are expanding their demand. Also present is the possibility of creating new markets. With this uncertainty present in the demand for soft white wheat, along with the advent of increased risk as a result of expansion in operation size, the industry panel indicated a desire and need for a futures contract appropriate for their industry. With soft white wheat fulfilling the characteristics traditionally thought necessary for a market and its commodity to succeed as a futures contract, all that remains is attracting the proper interest, both commercially and speculative; and providing a contract with terms favorable to both the industry and the speculator. Close coordination between the soft white wheat industry and the Chicago Board of Trade should lead into good contract conditions. Commercial interest does exist but the hedger will have to be educated on the use of the futures contract. Deciding when to get into the market, deciding whether to buy or sell, is just a start. It requires time to watch the market, manage its use, and integrate it into one's operation. With this accomplished, speculative interest should be attracted. The attributes often cited as necessary for successful futures trading are not necessarily required for a successful futures market. The number of characteristics a market and its commodity has will not guarantee its success, and if any characteristics are lacking, does not mean assured failure. With all factors considered, soft white wheat does seem to have as much potential of being successfully traded as any commodity now traded.
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