The upcoming launch of two European wheat futures contracts has stalled forward selling of the region's upcoming 2015 crop, with operators left guessing which of the new products will take off. Euronext will kick off a new, premium wheat contract on March 2, betting that addressing quality issues raised by a rain-hit harvest last year will justify the complexity of running it in parallel to its existing wheat futures that are a European benchmark.
"Having two (Euronext) contracts is one too many," Michel Portier, head of consultancy Agritel, said. "Futures live off physical contracts that are linked to them. All the people who have contracts against Euronext's No 2 (existing) futures are wondering if they are going to have to switch to the No 3."
In a further shake-up to Europe's wheat market, CME Group , the world's largest futures operator, is expected to launch within weeks its own futures that should offer different quality standards and a distinct physical delivery model. Traders and analysts said operators, who typically trade part of the wheat crop months ahead of the summer harvest, had put on hold some deals.
"At the moment people just do not know which futures contract will gain acceptance as a basis for delivery so people are postponing dealings in new crop until there is a clearer picture," a German trader said. The new Euronext contract should trade at a premium to the current futures but the spread could vary widely depending on actual harvest quality, analysts said.
Euronext says it had strong backing to bring forward the adoption of higher-quality wheat specifications, initially due in 2017, but some argue it could risk hurting valuable liquidity by over-reacting to last year's very bad harvest conditions. "I'm not 100 percent sure if they really needed this as the anger about the No 2 contract was already gone and CME didn't provide better (quality) specs either," one trader said. "It can surely hurt liquidity on futures and physical markets."
Investment funds, though less active than in US grain futures, could shun a less liquid EU market, some traders say. Despite an awkward transition period in prospect, others see potential for several contracts as in the US wheat market, especially given growing wheat production in the 28-country EU and relatively low use of derivatives by farmers.
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