CME vol­ume soar­ing with trade war, drought

Chicago Tribune (Sunday) - - BUSINESS - By Isis Almeida With as­sis­tance from Mark Burton.

it was a drought in Rus­sia, the big­gest wheat ex­porter. Then dry spells struck Euro­pean and Aus­tralian crops. And to spice up the mix, Pres­i­dent Don­ald Trump started a trade war with top soy­bean and pork buyer China.

That all added up to a volatile cock­tail that brought trad­ing back to life, ben­e­fit­ing the world’s largest de­riv­a­tives ex­change CME Group Inc. The Chicago-based owner of global con­tracts from soy­beans to wheat and hogs has seen av­er­age daily vol­ume of its agri­cul­tural com­plex rise to the high­est since at least 2008.

The ex­tent of weather dis­rup­tions and the tar­iff tit-for-tat that choked Chi­nese de­mand for Amer­i­can soy­beans came as a sur­prise for many traders af­ter years of bumper crops that de­pressed prices and con­strained volatil­ity, lim­it­ing vol­ume growth for CME’s agri­cul­ture con­tracts.

“The whole sit­u­a­tion with China is not the kind of thing you plan ahead and say ‘this is go­ing to hap­pen’, but when it hap­pens, it has a tremen­dous im­pact in the mar­ket­place,” Tim An­driesen, man­ag­ing di­rec­tor of agri­cul­tural com­modi­ties at CME, said in an in­ter­view in Chicago.

“You also had some pro­duc­tion prob­lems in Ar­gentina and Aus­tralia,” he said. “So you’ve seen these risks come into the mar­ket­place and when there’s risk, peo­ple hedge.”

The av­er­age daily vol­ume in CME’s agri­cul­tural fu­tures and op­tions — which also in­clude corn, dairy and live­stock con­tracts — rose 13 per­cent to about 1.56 mil­lion con­tracts in the year through Septem­ber. The in­crease com­pares with 1 per­cent the pre­vi­ous year and 6 per­cent in the same pe­riod in 2017. CME shares are up 24 per­cent this year, the best per­for­mance among ri­val ex­changes tracked by Bloomberg.

Agri­cul­ture’s not the only CME mar­ket ben­e­fit­ing. Trad­ing in the ex­open change’s Mid­west alu­minum pre­mium con­tracts jumped 24 per­cent this year as U.S. con­sumers rushed to lock in sup­plies af­ter Trump slapped tar­iffs on im­ported metal.

Trad­ing vol­umes in cop­per — a bell­wether for the global econ­omy — were up 35 per­cent in the first nine months of the year, the most for the pe­riod since 2012.

Cop­per prices have whip­sawed as a rare spell of har­mo­nious growth in the world’s ma­jor man­u­fac­tur­ing hubs seen at the start of the year started to break down, giv­ing way to rising fears about the fall­out from Trump’s trade war with China. The vol­ume in­crease also came as ac­tiv­ity in the Lon­don Metal Ex­change slowed, with users turn­ing against higher fees.

Trad­ing in cop­per has also been helped by op­tions, Young-Jin Chang, global head of met­als prod­ucts at CME, said in an in­ter­view ear­lier this month.

In agri­cul­ture, vol­ume also got a boost from tradFirst

ing in Europe and Asia. On April 4, the bourse recorded an all-time high in trad­ing for fu­tures and op­tions out­side U.S. hours.

“We came into the year ex­pect­ing things to be rea­son­ably slow -- the fun­da­men­tals weren’t set up for a lot of ex­cite­ment,” An­driesen said. “I don’t think any­body an­tic­i­pated the way the year would play out.”

While in­vest­ment funds and other fi­nan­cial par­tic­i­pants have been at­tracted by the volatil­ity, con­tracts have also seen a rise in open in­ter­est, a sign hedg­ing ac­tiv­ity has in­creased.

The CME’s agri­cul­tural com­plex reached record

in­ter­est of 10.1 mil­lion con­tracts on June 19 and record vol­ume of 3.2 mil­lion fu­tures and op­tions the same day. That came just 13 days af­ter record open in­ter­est for corn of more than 2 mil­lion con­tracts.

“We’ve def­i­nitely seen some growth in the hedge fund and in the as­set man­ager sec­tor in terms of in­ter­est in agri­cul­ture prod­ucts,” An­driesen said. “But as you are see­ing open in­ter­est build, par­tic­u­larly over a grow­ing sea­son or a ship­ping sea­son, that’s typ­i­cally in­dica­tive of com­mer­cial par­tic­i­pa­tion.”

M. SPENCER GREEN/AP 2008

The largest de­riv­a­tives ex­change has seen vol­ume of its agri­cul­tural com­plex rise to the high­est since at least 2008.

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