* Market to cater to Italy's pasta-making industry
* Building liquidity set to be key challenge
* Follows launch of durum futures in Canada in Jan
By Catherine Hornby
ROME, Nov 6 Borsa Italiana is set to launch
Europe's first futures market for durum wheat in November to
cater to demand from the continent's Italian-led pasta makers,
but building sufficient trading volumes will be a challenge,
Grain futures generally take a long time to attract a large
trading base, and the minimal volumes seen since the launch of
durum futures in Canada <0#DW:> at the start of the year have
highlighted the difficulties in the niche grain market.
Milan's exchange and pasta maker Barilla, which advised the
exchange on the launch of the futures market, said the financial
tool may be more effective in Italy, the world's largest
producer and per-capita consumer of pasta made from durum.
"The Mediterranean is an area of consumption of durum wheat,
and it makes more sense to have a market with physical delivery
where the grain is consumed," said Ennio Arlandi, who is
responsible for commodities at Borsa Italiana.
The new AGREX futures are due to launch around Nov. 19 on
the Italian Derivatives Exchange Market (IDEM) and will trade in
50 tonne contracts, with five maturities available at any one
time. The delivery months will be March, May, September and
Trading hours will run from 14:30 to 17:40 local time
(13:30- 16:40 GMT).
Emilio Ferrari, a purchasing director at Barilla, said the
market could take off if enough operators became involved.
"The more sophisticated operators, such as large French
cooperatives, big Italian mills, pasta makers, are interested,
but it's maybe a too modern instrument for smaller, less evolved
companies," he said.
He said futures could be useful for Barilla and other big
durum wheat buyers to cope with volatile grain prices.
"It helps to set a price far in advance. It helps us as
buyers to explain our budget, and it's also an advantage for the
farmer, who can set the price and doesn't face the risk of
markets changing rapidly."
For now just one delivery point is set in the area around
Foggia in southern Italy, but others may be added in future,
Borsa Italiana's Arlandi said.
He declined to give any details on possible volume targets
over time, but traders were sceptical as to how successful the
futures market would be.
"It's not going to be easy but we have to give it a try,"
said one European grains trader whose firm is set to be one of
the market-makers for the new durum futures.
"More than the quality specifications of the contract, what
is going to be a barrier is the delivery point in Italy. Even
though delivery is not an end in itself when using a futures
market, psychologically it will be a barrier."
A French grains trader said the design of the market could
"It is designed for the Italian semolina makers, in other
words for a consumer market, with little scope for trading," he
"The semolina makers buy their grain once to run their
plants, they don't buy twice, so this is going to limit volume."
Semolina is the product derived from milling durum wheat
that is used to make pasta as well as cereals and puddings.
Justin Daniels, director of commodity risk management at CWB
(formerly the Canadian Wheat Board), said that if the Italian
futures market survived for a couple of years, then it could
On Canada's market, open interest was just 46 contracts as
of Oct. 24 and has never been higher than 72. The futures
contracts have not traded in a month.
The Winnipeg exchange launched its durum wheat futures
market in January alongside new milling wheat and barley
contracts to cash in on the liberalisation of Western Canada's
Operators said the Milan futures would not be in direct
competition with Winnipeg, since they were tied to distinct
production zones and applied very different specifications, with
the Canadian futures based on higher quality grain.
"The one in Winnipeg is definitely going to be focused on
North American production. and the one in Milan will be focused
on European demand. There will be some arbitrage opportunities
between them, but it's not going to be like one is cannibalising
the other," Daniels said.
(Reporting By Catherine Hornby in Rome, Rod Nickel in Winnipeg,
Valerie Parent and Gus Trompiz in Paris; editing by Jane Baird)