Market Matters Blog

CME Group Dishes Up More Options

By  Katie Micik

CME Group announced on Tuesday it is launching three new hard red winter wheat options that will be available for on July 1, pending CFTC approval.

CME has been pretty open about wanting to expand the options offerings for HRW wheat since it first announced the acquisition of the Kansas City Board of Trade last October. In the past several years, CME Group has introduced weekly options, serial options and short-dated new crop options to the corn, soybean and soft red winter wheat markets in an effort to provide more targeted risk management tools (and some would say to generate more volume). 

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Of the three new options, two of them are options on spreads, the KCBT-CBOT wheat spread and MGEX-KCBT wheat spread. CME Group currently offers an MGEX-CBOT spread option, and this trifecta will "enable agricultural participants to manage the risk associated with the price differentials inherent between the hard red spring (HRS), soft red winter (SRW) and HRW varieties of wheat," according to CME's new release.

The third option is a weekly KCBT option, which provides a much shorter time frame than a standard option, which CME groups says makes it a cost-effective tool for managing event risk, such as weather and USDA reports.

"Since our acquisition of the KCBT late last year, we've taken a number of steps to grow the existing KCBT futures and options contracts," said Tim Andriesen, Managing Director of CME's Agricultural Commodities & Alternative Investments, in a press release. "We also committed to develop new and innovative options on KCBT wheat futures to provide additional trading and spreading opportunities for our wheat customers. The introduction of these new products expands our options offering and will benefit customers of both varieties of wheat, while further solidifying our role as the leading marketplace for the trading of deep and liquid wheat benchmarks."

The timing of the new option availability will coincide with the HRW pit's move from Kansas City to Chicago. The last day of pit trade will be June 28, coincidentally the same day USDA releases its Quarterly Stocks and Acreage reports. The HRW pit will open in Chicago on July 1.

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Freeport IL
5/16/2013 | 12:57 AM CDT
Take forum production estimate times 90% plus beginning balance plus import minus USDA�s WASDE use estimate would be 900 million ending. Drop 3 million acres from that, the use would be less than USDA�s. But that is not the point. The end of this week we could have 53% of the corn planted. The next three week - to and through the final plant date for most of us- we could be around 87% planted. (Although the normal field days per week increases as the season rounds on. As planting progresses more planters are in the shed, (They are done.) so weekly planting progress decreases.) That 87% would mean some 12 million acres would be available for prevent planting. To continue to plant after the late date � from our numbers; every ones situation is different- one needs a high revenue insurance coverage (80% or 85%) and a believe fall corn will be over $6.25 per bushel for 80% coverage and $6.00 for 85% if one can shed a good chunk of input cost with prevent plant. I will give you, there are allot of assumptions in these numbers. But it is the best �guess� I have seen. (In another model that estimates price, it looks like only 30% of the time would planting pay. That model did not reduce US corn planted acres.) One needs to "play" with their farm specific numbers. I think you will find four key factors: fall insurance price, insurance coverage, amount of cost one carries into prevent plant and the amount of corn planted in the insurance unit during the timely period. (The more timely corn one has, the more likely the high revenue will be, the less likely an indemnity will help protect the additional revenue of late planted crops.) Of these factors, more likely than not, the fall price will be the only variable. Insurance is closed, what crops that can; will be planted and terms for money spent have already been set. Keep Dec futures low to the late plant date and the risk adverse grower will sit the balance of the corn year out. Freeport, IL
JeremeyFrost
5/15/2013 | 5:33 PM CDT
what production do you figure if we have 90% of trend line and lose 3 million acres????? plus don't we have to have cheaper prices to get the demand that the USDA has pegged for us?
Freeport IL
5/14/2013 | 11:59 PM CDT
Plugging current corn planting progress into our model, we guess US corn yield is now 90% of trend line. If one decreases planted acres by 3 million acres, the ending stocks of the 2013-14 balance sheet could be around 900 million bushels. If the market does not adjust prices higher to reflect this current risk, more corn acres will switch to soybeans or be headed to prevented plant. Corn yields tend to drop quicker than soybeans as planting dates pass. Some may currently find soybeans a more attractive option. Should grower be able recoup some input cost, choosing prevented planting currently is a viable option (after June 5th for corn for most of us). Freeport, IL