North America’s first cash-settled futures and options for grains and oilseeds will be launched in Minneapolis in February.
The contracts will begin with corn and soybeans rather than wheat, which is Minneapolis’ mainstay commodity. And it might not be easy to expand cash-settled contracts into other grain and oilseed commodities and into Canada.
“There’s just no one who collects the cash data here,” said Bruce Love, the Winnipeg Commodity Exchange’s director of marketing.
“The government has pretty well gotten out of that business.”
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Cash-settled contracts are different from regular futures and options because sellers and buyers don’t have the right to deliver the grain or demand delivery.
Instead, contracts that are outstanding at expiration are settled according to an index of cash prices.
The only cash-settled contracts are on the Chicago Mercantile Exchange, which trades livestock futures.
Love said cash-settled livestock futures are possible because the United States Department of Agriculture supplies sufficient data for livestock futures traders to accept that cash sales values are accurately reflected.
It has been more difficult to establish cash-settled grains and oilseeds contracts because there are many more delivery points.
A futures contract will not be used if it does not accurately reflect the underlying cash market.
The Minneapolis corn and soybeans cash-settled contracts will rely on cash sales numbers from 1,500 elevators, which will be gathered by Omaha-based electronic trading company Data Transmission Network.
Bill Wilson, a member of the MGE’s board of governors, said the exchange hasn’t yet decided whether to expand cash-settled contracts into other commodities.
“We’re evaluating all other crops, commodity groups and instruments.”
Wilson also said the MGE does not plan to convert all its trading to electronic trading, which is how these contracts will be traded.
“We currently have a very viable floor for open pit outcry trading in wheat,” he said.
“Whether or not electronic trading would be a complement to that or not at all introduced is pretty far forward.”
Love would not say whether the WCE is likely to introduce cash settled contracts.
“We haven’t announced anything yet,” said Love.
