UPDATE 2-CME confirms cocoa contract plan, EU wheat ambitions

Mon Jun 9, 2014 12:36pm EDT

* CME says aims for London cocoa launch by early 2015

* Also confirms efforts to enter European wheat market

* CME touts improved delivery for commercial users

* No longer looking at cotton after industry backed ICE (Writes through with details, background)

By Gus Trompiz

LONDON, June 9 (Reuters) - CME Group, the world's largest futures exchange operator, confirmed on Monday it plans to launch a London-based cocoa contract in the coming months in a direct challenge to IntercontinentalExchange Group Inc .

As part of a push by CME into Europe, it is also looking at entering the European wheat market either through a partnership with incumbent operator Euronext or with its own contract, Tim Andriesen, CME's head of agricultural products, told reporters.

This is the first time CME has publicly announced its cocoa contract plan, which trade sources have previously reported.

CME is aiming to launch the cocoa contract "late this year or early next year", subject to regulatory approvals, on its new London-based CME Europe platform that began trading at the end of April, Andriesen said.

The cocoa contract would be focused on the physical cocoa trade in Europe and strive to offer a better delivery system.

"It's a market that we think has room for improvement," he said. "With a lot of physically delivered contracts it's all about the delivery mechanism whether it's warehousing, the delivery mechanism, timing."

CME's entry into cocoa, a niche commodity market, will pit it against ICE, which has added London futures to its New York derivatives following its takeover of Liffe.

WITH OR WITHOUT EURONEXT

In wheat, where CME is the dominant global futures operator through its Chicago and Kansas contracts, the company has not yet decided which route to pursue to enter the European market, Andriesen said.

Trade sources have reported that CME has been working on its own wheat contract to challenge Euronext's Paris-based futures, with the aim of launching later this year.

"Our question is what is the right way to be in this market. Is the right way to be in this market to look at (Euronext) post-IPO and particularly work with them as a partner? Or is it something that we as an exchange should potentially launch as our own product?," Andriesen said.

"We haven't answered that question," he said.

There has been market talk that CME could acquire Euronext's Paris wheat contract, potentially in connection with the initial public offering for Euronext being planned by ICE.

But Andriesen said that was a less likely option than a partnership with Euronext or an independent CME contract.

As in cocoa, CME saw an opportunity to offer better delivery for commercial operators, notably in order to allow forward prices to reflect the cost of storing grain, he said.

"What we've heard from market participants who are carrying inventories and from producers ... is that that's not happening today," he said.

Euronext, also referred to by its former French name Matif, has come under criticism for offering a sole delivery point for wheat, although the exchange now plans to add another two port delivery points before the end of 2015.

CME already operates a Black Sea wheat contract with delivery points in Russia, Ukraine and Romania, but the market has been virtually illiquid, with Andriesen noting the crisis in Ukraine had contributed to the contract's difficulties.

The exchange is working on changes to the contract, having recently requested the suspension of upcoming delivery months, he said, without giving further details.

In contrast to its drive to expand in European agricultural derivatives, CME was no longer planning to enter the global cotton market after industry players gave their backing to ICE's plans for a world contract, Andriesen said. (Reporting by Gus Trompiz, writing by Susan Thomas, editing by David Evans and Erica Billingham)

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