Market Matters Blog

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).

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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