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CME aims to boost KC wheat

04/05/2013 @ 7:21am

CME Group Inc. (CME), the world's largest futures market operator, is targeting both U.S. and Asian markets to boost volumes of Kansas wheat futures and also focusing on driving up its options volumes in agricultural products, top company officials said.

CME Group completed its acquisition of the Kansas City Board of Trade, the benchmark futures market for Hard Red Winter wheat, in December.

Futures exchanges worldwide are grappling with a slowdown in trading activity through acquisitions and by expanding their portfolio of products. In CME's portfolio of agricultural futures, the daily volume averaged almost 790,000 contracts last year, up 4% from 2011.

"The volumes for KCBT wheat have already started to go up, and we see a significant growth opportunity in Asia," Timothy J. Andriesen, CME Group's managing director for agricultural commodities and alternative investment products, told Dow Jones Newswires.

For several decades now, the Chicago Board of Trade, also part of CME Group, has served as the main futures trading platform for wheat worldwide. The contract traded on CBOT is for the Soft Red Winter grade. Even though Hard Winter grade is the largest produced wheat by volume in the U.S., accounting for more than 40% of the country's output, KCBT's average daily volume for wheat futures is less than a third of its CBOT counterpart.

Mr. Andriesen said the KCBT wheat trading volume may rise as more players do arbitrage with contracts on CBOT. The implied inter-exchange KCBT-CBOT wheat futures spread is available for trading on CME Globex, he said.

The average daily volume of HRW wheat futures on KCBT was close to 30,700 contracts in February, up from around 19,000 the previous month. In contrast, CBOT wheat futures had an average daily volume of more than 100,000 contracts last year.

"Asian millers are major importers of HRW wheat, but many were earlier hedging their risks only on CBOT due to a lack of awareness, and we are now offering them another choice," said Nelson Low, CME Group's Singapore-based executive director for commodity products.

He said there are several pockets of opportunity to boost volumes in Asia, including trading on spreads such as KCBT wheat and CBOT corn.

Last week, ANZ Banking Group said in a note to clients that investors should buy wheat futures on KCBT and sell corn on CBOT to take advantage of potential upside in high-quality milling wheat prices.

Mr. Andriesen said once the KCBT's open outcry trading shifts to Chicago in July, it will help push up trading volume in wheat options.

"Options are strategy focused and complicated, and the trading floor is a very effective incubator for them. Unlike 95% of CBOT agri futures, which are trading electronically, around 60% of options are traded on the floor," he said.

Mr. Andriesen said the company also launched short-dated new crop corn, soybean and wheat options on CBOT last year, which gives hedgers a choice to trade for a smaller time period and therefore reduce their costs.

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