Starting Monday, CME will introduce a smaller contract size for urea out of the U.S. Gulf.
What was once in increments of a full barge—100 ton, will now be available in 10 ton contracts.
“We are pleased to introduce 10-Ton Urea U.S. Gulf futures on June 2,” says John Ricci, Managing Director and Global Head of Agricultural Products at CME Group. “At 1/10th the size of the existing Urea (Granular) FOB U.S. Gulf futures, these contracts will allow for more precise hedging and expanded market access to smaller-sized end users of urea. Amid high volatility, these new contracts will offer greater flexibility for producers to manage their fertilizer price risk.”
“There was a lot of back and forth on what would be better from the farmer perspective—10 to 25 tons,” says Josh Linville vice president of fertilizer at StoneX. “Both made sense, but 10 tons was a bit of a better fit for farmers, and I agree with that.”
Linville says he expects a soft roll out of the new pricing tools in the coming weeks with building liquidity and activity to come.
“What this is it’s an added too. It won’t replace how the market does physical activity,” he says. “It’s another option to have some control over fertilizer prices, which have been extremely volatile in the past couple of years.”
Linville says the lower tonnage threshold will help more buyers price out further.
As another example of how this tool could be helpful for urea, Linville points to the recent UAN market.
“We had a sense at the first of the year that UAN inventories were tight, and we are telling people but they didn’t want to buy on the physical side. Then, this spring, the inventories weren’t available,” he says. “If they had bought the physical, they could have hedged the inventory on the future markets. Then it’s about making physical purchases while offsetting the risk.”
Previous Coverage: Watch For Changes In The Way You Purchase Fertilizer
