CME Group will launch three wheat options contracts on its Kansas City Board of Trade hard red winter wheat futures beginning July 1, the exchange said on Tuesday.
CME plans to offer two options on popular wheat spreads — KCBT hard red winter wheat versus Chicago Board of Trade (CBOT) soft red winter wheat, and KCBT wheat versus Minneapolis Grain Exchange (MGEX) hard red spring wheat — and weekly KCBT options.
The products’ debut follows CME’s purchase of the KCBT last year. CME is awaiting final approval of the products from the U.S. futures regulator, the Commodity Futures Trading Commission.
The options on inter-market spreads will offer market participants another way to trade the price difference between the three U.S. wheat markets, each representing a different wheat variety, analysts said.
“You have different fundamentals on each side, with the stronger demand in Chicago and bigger production, and weaker demand in Kansas City and smaller production,” said Ken Smithmier, a grains analyst with the Hightower Report in Chicago.
He noted the Kansas/Chicago wheat spread has been active the past month amid big sales of U.S. soft red wheat to China.
Options on KCBT-MGEX wheat could find favour among speculators and commercial hedgers, including flour millers, interested in trading the price difference between mid-protein Kansas City wheat and the high-protein Minneapolis crop.
A Chicago-based option contract could also answer concerns about liquidity in the smaller MGEX market.
“There are enough people that like to trade that, and have gotten killed in the thin Minneapolis market,” said Roy Huckabay with the Linn Group, a Chicago brokerage.
“Putting it on the floor here and letting guys take those spreads home with a limited risk option might be a popular trade,” he said.
Weekly options on KCBT wheat could serve as a tool for managing risk surrounding short-term events such as U.S. Department of Agriculture crop reports or weather events, the exchange said.
CME Group launched weekly options on CBOT corn, wheat and soybean futures in June 2011.
All three KCBT options will be traded on the Chicago trading floor and on CME’s Globex electronic trading platform, the exchange said.
— Julie Ingwersen reports on ag commodity markets for Reuters from Chicago.