Market Matters Blog

CME Group announced on Tuesday morning that it's adding a new option product to its newly acquired hard red winter wheat contract. The short-dated new crop option on the Kansas City wheat contract will be available for trading on August 26, as will a short-dated new crop option on the CBOT wheat contract.

I usually hate acronyms, but for the sake of not having to retype a five letter phrase a million times, I'll refer to short-dated new crop options as SDNCOs. They've been very popular options in the corn and soybean markets: more than 975,000 SDNCOs on corn and soybeans have traded since they were first released. Open interest ahead of the July options expiration peaked at more than 240,000 contracts.

SDNCOs are options on the new-crop contract but expire at key times during the growing season (planting, emergence and pollination), allowing farmers and traders to protect against smaller a time frame, which lowers the option premium. For the wheat SDNCOs, the underlying futures contract is July 2014. There will be expirations in December 2013, March 2014 and May 2014.

"Since acquiring KCBT last year, we've significantly developed the HRW wheat options complex through the introduction of innovative new products and the growth of standard options," said Tim Andriesen, Managing Director, Agricultural Commodities & Alternative Investments, CME Group. "These new short-dated options will provide market participants with a cost-effective tool to manage their price risk during targeted timeframes in the hard red winter wheat growing season. At the same time, average daily volume in our standard KC HRW Wheat options has increased by 30 percent since December 2012."

The big question when it comes to wheat options is if they'll generate sufficient volume. CME Group first released corn, soybean and CBOT wheat SDNCOs in the middle of the growing season in 2012 and that limited initial participation. That's especially true in CBOT wheat SDNCOs, which haven't been traded even though they were available.

A CME spokesman told me that based on the significant interest in corn and soybeans, they're "cautiously optimistic we will see trading" in both of the SRW and HRW wheat SDNCOs in this new crop cycle.

(CZ)

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