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CME's new spring wheat contract struggles with low trading

volume, open interest

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Traders prefer MIAX contract due to familiarity,

established use

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CME determined to give spring wheat futures "time to

build"

By Julie Ingwersen and Karl Plume

CHICAGO, Aug 21 (Reuters) - In a head-to-head contest in

a small corner of agricultural futures markets, a legacy spring

wheat contract that has traded for more than 140 years is

fending off a challenge from a competing contract launched this

spring by CME Group ( CME ), the world's largest futures exchange.

Spring wheat, grown in the northern Plains of the U.S. and

Canada, is favored for bagels and frozen dough. The contract was

introduced in 1883 on the Minneapolis Grain Exchange and has

long set the price for premium-quality wheat used by North

American millers and exported around the world.

Compared to other commodities, trade in spring wheat

contracts is relatively modest. But it is among the only major

agricultural commodity derivatives not dominated by CME Group ( CME ),

which in recent decades has expanded from its 19th-century

origins as the Chicago Mercantile Exchange into a $99 billion

behemoth with acquisitions including the Chicago Board of Trade

and Kansas City Board of Trade. Now, nearly 2 million contracts

are traded daily for corn, soybeans, winter wheat and livestock.

But CME's much smaller rival, Miami International Holdings ( MIAX ),

or MIAX, which bought the independent Minneapolis exchange in

2020 and moved it off of CME's electronic trading platform this

summer, is winning the battle in spring wheat.

"It's David versus Goliath," said Joe Nussmeier, a broker

with Frontier Futures.

Earlier this summer, CME's spring wheat futures,

saw hefty daily trading volumes of tens of thousands of

contracts. Those volumes have faded to a few dozen a day,

according to CME data. It also shows that open interest, which

reflects the number of active contracts held by traders, has

plummeted from a peak of nearly 2,100 contracts to around 600.

Large grain handlers and millers including CHS,

Archer-Daniels-Midland and Cargill's joint venture Ardent Mills,

who represent the bulk of commercial trade in spring wheat, are

sticking with MIAX.

Traders said that most of the CME's early volume bump came

from "market makers," or traders given an incentive by CME to

trade the contract to boost market liquidity and facilitate

trading for others. But those traders do not often take

longer-term positions like commercial traders such as grain

millers and elevators who use futures to hedge against the risk

of owning large inventories of grain.

"It does not feel like there's any commercial participation,

and what the product needs to thrive is a commercially backed

hedger, whether it be an end user or a grain elevator," said

Nussmeier.

CHS and ADM declined to comment. Ardent Mills did not

immediately reply to requests for comment.

LEGACY CONTRACT

MIAX shares jumped 38% last Thursday, the day of its initial

public offering on the New York Stock Exchange, valuing the

exchange operator at about $2.5 billion.

CME Group's ( CME ) new spring wheat contract is a near look-alike

in terms of structure, and both were traded electronically on

CME's Globex trading platform until June 30, when MIAX debuted

its Onyx trading platform.

Despite the new competition, trading in MIAX Minneapolis

wheat futures has been steady at around 7,000 to 14,000

contracts per day this month after falling 31% in July, a drop

traders said was due largely to technical problems associated

with the shift to a new trading platform. Open interest has held

around 60,000 to 70,000 contracts, close to historical levels.

Cash markets are also backing MIAX as bids for spring wheat

posted by grain elevators across the northern Plains largely

remain tied to its contract, not CME's.

"The legacy MIAX contract is still the favored contract,"

said Jeffrey McPike, a U.S. analyst with brokerage WASEDA

Commodities.

In July, three CME employees traveled to Fargo, North

Dakota, to promote the new contract among a group of some 50

millers and traders gathered for Wheat Quality Council's annual

spring wheat crop tour.

CME-branded swag and a barbecue brisket dinner did not

translate to more trade.

John Ricci, CME's global head of agriculture products, said

the exchange would give its spring wheat contract "time to

build."