Sergey Feofilov: Black Sea grain traders are in preparation to test new CME instruments

02.07.2018

CME Group are pleased to announce the listing of financially-settled Black Sea Wheat options (BWO) and Black Sea Corn options (BSO) for trade date Monday July 16 2018. CME Group plans to expand derivatives offerings by introducing Black Sea wheat and Black Sea corn futures monthly options contracts July 16.  – Open sources and comments.

I consider CME Group moves as a serious success in expanding of hedging advantages for new/developing markets like the Black Sea. The market participants in the Black Sea region trade mainly cash grains. So they need to protect their profits, to decrease their financial risks and – last not at least -  to reduce risk of local steady grain supplier. Most likely, the BWO and BSO instruments may invite short-terms players to trade in the Black Sea Region.

If the first mentioned risks are more of a trader concerns, the sharp decreasing of local suppliers’ risk could be illustrated in the following way.

Today if an exporter of Black Sea Wheat faces delivery default by the local wheat seller, there is no way for the exporter to be compensated.

Tomorrow with the futures / options derivatives, the exporters could buy Black Sea wheat at a price of $30 basis premium to the Black Sea futures. If the futures will be traded at $170 per MT, the total wheat price will be at $200 per MT.

If a local supplier fails to deliver wheat under physical contract, the exporter risk is limited to the basis risk of $30 per MT. The exporter would still own the BWO/BSO contracts at $170 per MT. He would have to look for and find another local supplier with about the same price of $30/ton above the Black Sea futures.

 

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