The three products - diammonium phosphate (or DAP, which is 18 percent nitrogen and 46 percent phosphate), urea (46 percent nitrogen), and urea ammonium nitrate (or UAN, which is 32 percent nitrogen), together have combined annual sales of $4 billion to $6 billion in the U.S. CME worked on the development of the contracts with the FCStone Group, Inc., a major financial services and derivatives brokerage firm serving agriculture markets.
"There has been a tremendous amount of price volatility in the underlying markets of these fertilizers, creating one of the biggest financial variables for U.S. agricultural producers," said CME Chairman Terry Duffy. "These new contracts will provide users with a significant new tool to manage those price risks."
"These products represent one of the few areas of agriculture that cannot be directly hedged through futures contracts," said CME Chief Executive Officer Craig Donohue. "We have designated contract months which correspond with those commonly offered for major grain products, which will create appealing spread trading opportunities, and further diversify our commodity product mix."
"The development of these new contracts will provide the entire fertilizer industry with the tools necessary to achieve financial risk management objectives," said Pete Anderson, Chief Executive Officer of FC Stone Group, Inc. "We are very excited to have worked with CME over the past year to develop these three essential fertilizer products. Our customer-owners have been asking for effective fertilizer commodity risk tools for several years. We are pleased with the timely, proactive response from CME."
The contracts will be sized at 100 tons each, and will be listed with expirations in March, May, July, September and December. The minimum price movement will be $0.50 per ton. Expiration will be on the last business day prior to the 16th calendar day of the contract month. Options on futures will expire on the first Friday of each contract month. The contracts will trade on CME's GLOBEX Monday through Thursday from 5 p.m. to 3:15 p.m. the following day and Sundays and holidays from 5:30 p.m. to 3:15 p.m. the following day. Trading on expiration day will close at 12 noon.
The contracts call for physical delivery from the seller's choice of origin to the buyer's destination, using rail based transportation paid for by the buyer, which replicates the practice of the underlying cash markets.
The U.S. is the second largest producer and consumer of these fertilizer products after China. Over the past five years the price variability of the commodities underlying the contracts has ranged as high as 50 percent.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX® electronic trading platform. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.4 billion per day in settlement payments in 2003 and managed $39.5 billion in collateral deposits at Jan. 31, 2004. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE: CME), which is part of the Russell 1000® Index.
FCStone Group, Inc. (www.fcstone.com) is owned by over 750 farmer cooperatives in the Midwest and offers companies around the world risk management strategies to help minimize risk and maximize profit margins. The FCStone Group serves clients at every stage of the commodity value chain - from policy decisions to origination, merchandising and production through processing, wholesale and retail. FCStone Group is a registered FCM with the Commodity Futures Trading Commission, a member of the National Futures Association, and is a clearing member on the CME.
Chicago Mercantile Exchange, CME and GLOBEX are registered trademarks of Chicago Mercantile Exchange Inc. Further information about CME and its products is available on the CME Web site at www.cme.com.
