CME Group to launch three options contracts on KCBT wheat

Tue Jun 4, 2013 1:30pm EDT
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By Julie Ingwersen

CHICAGO, June 4 (Reuters) - 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 soft red winter wheat, and KCBT wheat versus Minneapolis Grain Exchange 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 favor 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.   Continued...