UPDATE 1-CME distillers' dried grains futures start in April
* DDG contracts will be equivalent to 100 short tons
* Trading to start April 26
* Traders wary about volumes for new contract (Adds analyst, trade reaction, details)
CHICAGO, Feb 16 (Reuters) - CME Group Inc (CME.O) will launch futures contracts for distillers' dried grains, a byproduct of corn ethanol production that can be used to feed animals, the exchange operator said on Tuesday.
Trading in the distillers' dried grain contracts will start on April 26.
"This product will enable our feed customers to directly manage price risk of feed inputs that they haven't been able to before," Tim Andriesen, CME Group managing director for commodities, said in a statement.
Traders were skeptical that the new contract would attract significant volumes, pointing to the CME's ethanol futures contract as an example of the difficulty of attracting interest to a new market.
"I am always a little apprehensive about any new products being launched, simply because so many of them have failed," said Frank Cholly, senior market strategist at brokerage Lind-Waldock in Chicago. "If it gets off to a slow start, and they usually do, then it is very difficult for it to become viable."
A distillers' dried grains contracts could attract interest from hedgers looking to use them in combination with corn and ethanol futures to lock in margins.
"These contracts look good on paper, and they do serve a purpose," said Shawn McCambridge, analyst at Prudential Bache Commodities in Chicago. "It just depends on whether or not the producer or the industry in general wants to participate."
Production of distillers' dried grains has been on the rise during the past few months as falling corn prices improved the profit margins at ethanol plants.
Global economic weakness also has boosted demand for distillers' dried grains, which typically cost about 22 percent less than corn. [ID:nN03515308]
The export market also was heating up as China was expected to step up purchases as part of its plan to stockpile grains. Exports of distillers' grain rose to a record 5.64 million tonnes in 2009, worth nearly $1 billion, according to the Renewable Fuels Association.
A contract will be equivalent to 100 short tons of distillers' dried grains, CME said. Deliverable grades must include a minimum of 26 percent protein and 8 percent fat as well a maximum of 12 percent fiber content and 11.5 percent moisture content.
Shares of CME Group (CME.O) were up $3.81 at $294.88 in Nasdaq trading on Tuesday. (Additional reporting by Michael Hirtzer; Editing by Walter Bagley)