Chicago Exchange Goes After Wheat Contract Famous in Minneapolis

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(Bloomberg) — The battle for spring-wheat supremacy has begun. 

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The CME Group, one of the world’s largest derivatives marketplaces, has launched new futures and options for the grain variety dubbed the “aristocrat” for helping improve flours for bagels, croissants, hearth breads and pizza crust. Trading of this type of wheat has been dominated for more than a century by MIAX Futures Exchange, formerly known as the Minneapolis Grain Exchange.

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However, with MIAX planning to move its spring wheat contract off CME’s Globex electronic platform in the coming months, the Chicago-based exchange is now offering its own version. Traders say the grains-hedging sector might not be big enough for two such contracts, even though the roughly 30 million combined acres in the US and Canada make the wheat among the most widely planted crops in North America.

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“You’re not going to have two of the same contracts competing,” said Ed Usset, a grain market economist and professor at the University of Minnesota who helped to buy wheat for the former Pillsbury Co.’s massive Minneapolis mill. “One will win out.”

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CME likes its chances. The bourse already has the most popular wheat contract in the world for soft red winter wheat, which is grown in states such as Illinois and Ohio and used mostly to make flour for biscuits, cakes and cookies. In 2012, it also acquired the Kansas City Board of Trade and its hard red winter wheat futures, for wheat grown in the southern Plains and used to make bread flour. 

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For the new spring wheat contract, which started trading last week, CME is offering discounted rates for spread trades on its Globex platform. 

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“Market participants can now trade every major wheat market on our exchange, with the added benefits of capital efficiencies and spread capabilities that will be key differentiators moving forward,” said John Ricci, CME’s managing director of global agriculture.

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Spreading is very active in wheat, with variables in each year’s production or protein content prompting physical grain buyers to turn to different geographic areas for supplies, with futures trades in the differing grain classes helping to hedge the risk. “The spreads mean everything to the millers,” Usset said. 

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MIAX, established in 1881, has its long history of prices as an advantage. And since it’s the only agriculture contract for MIAX, the world’s 14th-largest derivatives marketplace may be more flexible to keep traders happy. 

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“It’s hard to start a new contract,” said Austin Damiani, a member of both the CME and MIAX. Speculators, more than anything, want historical prices for clues on how markets may perform in the future. “They don’t care if it’s spring wheat or pork bellies; it’s just a dataset of historical prices.”