During the 2001/2002 harvest year, volatility in wheat prices reached a peak of around 15%. The price fluctuations have led Euronext Paris to offer industry professionals an additional contract to gain better control of price risk. The existence of an over-the-counter market testifies to the interest of grain growers, cooperatives, brokers, millers and the food industry in general for such hedging instruments. Creating a standard option contract traded transparently on a regulated market like Euronext will encourage the emergence of reference prices while guaranteeing effective execution of trades made without counterparty risks.
This new product was approved by the Expert Committee set up by Euronext in 1998 when it launched a futures contract on milling wheat. Members are European wheat industry professionals.
The market for milling wheat futures is now mature enough to allow the introduction of an option based on these contracts. In 2001 volume in futures showed a 73% rise on the figure for 2000. In the first five months of 2002, over 400 contracts were traded each day.
Options on milling wheat futures will be traded on the electronic trading system used by Euronext Paris, starting June 28. At least eleven exercise prices will be opened for each expiration date, with a one-euro difference from one strike price to the next.
Grain product contracts traded on Euronext.liffe, which brings together the derivatives markets of Euronext Amsterdam, Brussels, Lisbon, Paris and LIFFE, include four futures -- on milling wheat, feed wheat, barley and corn -- as well as an option on feed wheat. In 2001, trading volumes in these products were up 37% on the previous year.
