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CME Group Offers Short-Term Hedges against Planting, Pollination

May 17, 2012
By: Fran Howard, AgWeb.com Contributing Writer
risk management1
  
 
 

Short-term, new-crop options offer protection at lower cost during targeted production timeframes

Crop producers and grain elevators will soon have a new, less-expensive choice when putting together a risk management plan.

Last week the CME Group launched short-dated, new-crop options on Chicago Board of Trade (CBOT) corn and soybean futures. The new contracts will begin trading June 4. Short-dated, new-crop wheat options will begin trading Sept. 4.

"An increasing number of our producer customers use options to manage risk during the growing season," says Tim Andriesen, managing director of agricultural commodities and alternative investments for the CME Group. "The new options offer a distinct benefit to producers."

Andriesen notes that the greater the price volatility and/or the longer the time to a contract’s expiration, the greater the cost to use options. Thus the CME Group is launching short-dated, new-crop options to allow customers to manage new-crop risk at a reduced cost during targeted timeframes in the growing season.

Short-dated, new-crop options are available for December corn, November soybeans and July wheat. The new contracts expire earlier than the standard options on those contracts. For each futures contract, three earlier-expiring options will be listed. May, July and September contract months will be listed for short-dated, new crop options on CBOT corn and soybean futures. December, March and May contract months will be listed on the new wheat options.

For example, Andriesen says, corn producers might not be ready to protect their entire crop in January, but they could choose to protect the crop for a portion of the growing season by choosing one of the short-dated options on the December contract, which expire in April, June and August. For instance, he says, if they want to protect their crop through the critical pollination period, they can choose the option that expires in July. If they just want to protect through planting season, they’d choose the option that expires in June. The option with the shortest time to expire is the least expensive, he says.

"Additionally, these options will enable our commercial grain customers to expand their offering of minimum price contracts," Andriesen says. "Elevators can hedge themselves against minimum price contracts using these options."

The short-dated, new-crop options will be listed for electronic trading on the CME Globex platform as well as through open-outcry, pending self-certification with the Commodity Futures Trading Commission (CFTC).

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