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Here is an interesting read.


AMERICANS who run the world's biggest derivatives market are working with Moscow to create a wheat futures market.

The market would serve the huge agricultural producers in Russia, Ukraine and Kazakhstan.

The aim by the Chicago Mercantile Exchange is to set up an exchange in the Russian capital based on the proven Globex trading platform used in Chicago.

By allowing Russian producers and industrial consumers to hedge against sharp movements in wheat prices, the exchange would lessen the danger of a repetition of the sharp jump in prices this summer after Russian grain production collapsed.

A high-profile delegation led by Craig Donohue, chief executive of the Chicago Mercantile Exchange, has visited Moscow for talks hosted by the First Deputy Prime Minister Viktor Zubkov.


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The talks are at an early stage, but the market for wheat futures could presage further links between Chicago and Moscow to allow the country to develop its financial services industry.

Various exchanges have long sought an entry into Russia but have been blocked by regulatory barriers. Any venture would inevitably need the blessing of the authorities there.

A market would require the involvement of the Russian Trading System, which was involved in last month's talks along with Micex, the Russian equities exchange. The RTS already offers derivatives in a series of products including Urals and Brent crude oil and gold, and trades in US dollars.

But as yet there are no wheat futures available to trade.

In August, the Kremlin was forced to halt grain exports after the combined effects of a heatwave, drought and wildfires threatened to wipe out a third of production. Russia is the world's third-biggest exporter of wheat and the shortfall meant that the country could struggle to meet its own needs.

The ban led to a worldwide surge in wheat prices by a third. While a good harvest in the United States and elsewhere limited the worst effects of the rises, there were fears of a return to the 2008 food price crisis that caused riots in some cities in the developing world.

In Britain, producers such as Premier Foods, owner of the Hovis brand, warned the rise would spark an inevitable increase in prices.

Leo Melamed, the chairman emeritus of the Chicago exchange, was born in Poland and fled with his family through Russia to sanctuary in America during the Second World War. He has said that if Russian farmers had had a futures market to insure their crop, they would have saved large amounts of money.

There are already two wheat futures markets, the biggest run by the Chicago Board of Trade under the CME's ownership. The second is in Paris, operated by NYSE Liffe.

[GrainBeetle]

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