| CHICAGO, July 1
CHICAGO, July 1 It was business as usual on the
first day of pit trading for Kansas City Board of Trade wheat on
the floor of CME's Chicago Board of Trade on Monday, marking the
start of a new era for U.S. wheat futures trading, traders and
There was no fanfare, with no celebrities ringing an opening
bell and no donuts or cake served in the hallways to mark the
transfer of KCBT floor trading to the Chicago floor. The KCBT
closed its pits for good on Friday following CME Group's
purchase of KCBT last fall.
The new KCBT wheat futures pit was subdued, with only a
handful of traders in the center straddling laptops, a stark
reminder of the screen-trading revolution in grains that has
depopulated floor-trading pits in the last two years.
Nearby, trading in KCBT wheat futures options was busier,
since they - as with other CME grain options - are still traded
mostly by hand-waving brokers and have not moved entirely to
An estimated 15,600 KCBT wheat futures traded, according to
the CME website, compared with average daily volume of 29,600
KCBT wheat contracts in the final days of trading in Kansas
City. CME preliminary options volume was not available, though
floor traders said no KCBT spread and weekly options traded.
But KCBT veterans said it was a solid first day transition.
"I can't see any way that volume and liquidity wouldn't be
enhanced by being here," said Jeff Voge, a former chairman of
the Kansas City Board of Trade who watched the first-day trading
in Chicago beside the new pit.
A GOOD DEAL?
On paper, CME's $126 million takeover of KCBT makes sense.
Chicago's ability to draw in speculative money to grain
derivatives should spill over to KCBT, boosting volumes and
liquidity. CME has the leading voice for grain traders with
regulators, farmers and agricultural bankers. CME is also
debuting more KCBT options contracts with the switch to Chicago.
The wheat industry is closely watching the merger of KCBT
and CME, not just for volumes and market liquidity, but also for
cash pricing. The KCBT wheat contract is the benchmark for
trading in hard red winter wheat, the main bread wheat.
HRW flour millers have been an influential commercial voice
in shaping the KCBT contract for hedging and wheat pricing, and
HRW exporters have also been a powerful voice.
Some wheat millers have expressed concern that the CME -
whose contract is based on the much smaller soft red winter
wheat crop - may tinker with the HRW contract to attract more
speculative non-grain investors, as it has with the SRW wheat
Asked about potential changes to the KCBT contract, Voge
told Reuters: "That's a possibility," quickly adding that the
merger will give the KCBT more exposure, volume and liquidity.
"People around the world, when they think of hedging wheat,
they think of Chicago, right or wrong, even if you're a protein
buyer," he said.
Unlike Chicago wheat, Kansas City grain traders also will
still play a daily role in determining the value of cash wheat
based on country location and protein values at every two-tenths
of a percent change. The "basis" prices - called "protein
scales" - posted by wheat millers and merchandisers will remain
the bread-making industry's daily benchmark.
"For the foreseeable future we will still meet at 12:30 p.m.
every day to publish the basis," said Morgan Shay, a veteran
grain merchant who oversees the daily KCBT protein scales.
"Mills and flour sales people rely on the numbers."
Another issue commercial grain firms will watch closely is
the different way that KCBT and CME have coped with a lack of
price "convergence" between cash and futures prices when futures
contracts expire. CME uses a complicated system of "variable
storage rates," while KCBT has taken a simpler path, setting up
fixed seasonal storage fees.
"It was hard to see Kansas City pits close," said one KCBT
trader now in Chicago. "But given that the underlying hard wheat
crop is two to three times the size of the soft crop, I wouldn't
be surprised to see Kansas City volume overtake Chicago wheat in
(Reporting by Christine Stebbins; Editing by Dan Grebler)