ICE age may loom for Minneapolis wheat exchange

Thu Oct 18, 2012 1:06am EDT
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By Julie Ingwersen

CHICAGO (Reuters) - More than 130 years after it joined exchanges in Chicago and Kansas City as a marketplace for U.S. farmers to hedge their crops, the Minneapolis Grain Exchange now has a lonely distinction: the last best chance for acquisitive rival Intercontinental Exchange (ICE.N: Quote) to get a foothold in the market.

In the wake of Wednesday's deal for Chicago rival CME Group (CME.O: Quote) to buy the Kansas City Board of Trade, the so-called MGEX is now the last independently owned agricultural exchange in the United States, home to a niche spring wheat contract as well as more esoteric products including agricultural index contracts and apple juice futures.

Although trading volume in MGEX wheat is only a third as much as Kansas City's wheat contract and equivalent to just 5 percent of the benchmark Chicago Board of Trade contract, it may prove to be a better fit for ICE.

First, both exchanges are wholly committed to electronic trade: ICE has made a habit of shutting open-outcry trading floors after buying other exchanges in New York and London, while MGEX closed its open-outcry futures pit in 2008.

And both have maneuvered to tap into business from Canada, where the grains market is opening up for the first time since 1943. MGEX last year allowed Canadian wheat to be delivered against its contract, while ICE bought the Winnipeg futures market in 2007 and launched a suite of little-traded grain futures at the start of this year.

Having missed out this summer on buying the London Metals Exchange and now pipped in Kansas City, MGEX is ICE's last chance to challenge the CME in U.S. agricultural markets, expanding beyond energy and soft commodities, traders say.

"The speculation would be that ICE would be interested in Minneapolis, to get a foothold into the U.S. agricultural trade. That is the talk," said Austin Damiani, an analyst with Frontier Futures in Minneapolis.

MGEX President and CEO Mark Bagan would not comment on whether the exchange was involved in any merger talks.   Continued...