Kansas City floor to close

Feb 8, 2013
by DTN

—HRW wheat open outcry trade moving to Chicago.

Open outcry trade of hard red winter (HRW) wheat contracts will move to CME Group’s agriculture trading floor on July 1, the exchange announced on Monday.

“It’s not a surprise,” said Justin Gilpin, a former floor trader and CEO of Kansas Wheat. More than 90 percent of HRW wheat futures trade takes place electronically and CME only agreed to keep the floor open in Kansas City for six months.

Farmers and traders have always been more concerned about keeping the wheat contract committee intact than keeping the pit open, Gilpin said, and CME has agreed to keep that committee intact for at least three years. The contract committee gives physical users of wheat input on the contract terms, a role they’d like to keep.

But closing the floor in Kansas City does create a few logistical questions, Gilpin said. Each day at 12:30 a group of wheat buyers get together and gather their cash data. Informally, it’s called the cash basis committee. In the rulebook, it’s referred to as the Market Reports Committee.

It’s important to know what prices are being paid for wheat with different protein levels, Gilpin said. “It plays an important role in HRW market, and I’ll be curious to know what the plan is going forward to make sure they have a mechanism for basis transparency,” Gilpin said.

A CME spokesperson said they’ve committed to maintain the committee, and “will work with the industry to determine the appropriate method to ensure it continues.”

The last day of futures and options open-outcry trade in Kansas City will be June 28, 2013. When the markets reopen on Monday, July 1, open-outcry trade will take place in Chicago. CME said it will operate an electronic trading center in the former KCBT floor space until the end of September, providing a place for Kansas City-based traders to execute trades on CME Globex.

Transitioning the pit to Chicago will increase efficiencies and trade opportunities for traders using both HRW and SRW wheat contracts, CME Group said in a press release.

“Throughout the integration process, we’ve remained focused on our customers who manage global price risk associated with these two classes of wheat,” said CME Group COO Bryan Durkin. “By moving Kansas City wheat to the Chicago floor later this year, we will make it as efficient as possible for our customers to trade both products and the spread between the two.”

CME also hopes its acquisition of the Kansas City contract will allow the creation of new options products and make spreading more efficient.

While these changes could create better hedging tools, many in HRW wheat country are sad to see the market go.

“The market keeps moving further away from the crop. I just hope the market doesn’t move away from the farmer that grows the crop,” Gilpin said.

As for how the HRW crop looks, Gilpin said people are starting to get nervous about the lack of moisture and the wheat that hasn’t emerged.

“It’s starting to get spooky,” Gilpin said. “We’re a couple of weeks away from when wheat starts needing a lot more moisture. The crop’s going to be dependent on every rain, and if we miss one of those, it will really mess with its prospects.” — Katie Micik, DTN