Miller Magazine Issue: 118 October 2019

79 ARTICLE MILLER / OCTOBER 2019 The Black Sea region remains a dominant force in to- day’s grain market, we all know this, but it has not always been like this. For example, it was not until 2001 that Russian wheat exports exceeded that of imports. Cur- rently the Black Sea holds the reign as the world’s larg- est wheat export, largest sunoil exporter, and 4th largest corn exporter in the world. Over the course of the past several decades, the world looked to U.S., Brazil, Cana- da and Australia for price direction with the primary em- phasis on U.S. As trade flows changed and production increased in the Black Sea, a greater importance relied upon the developments found in the Black Sea, especial- ly that of price. Several factors played into this shift of increased production. Bet- ter efficiencies and farming practices on some of the world’s most fertile land, devaluing FX market and ideal geographical loca- tion in relation to demand origins have contributed to increased production. The global wheat mar- ket remains a competitive marketplace. Every two to three months somewhere in the world, wheat harvest is occurring. Globally, pri- or to 2007, global supplies remained stagnant at 700- 750 mmt, since 2007 sup- plies have steadily grown to record levels seen at a near 1,050+ mmt. This a near 40% increase in global supplies! This while global demand increased 27%. During this same time, Black Sea in 2007 remained 18% of global wheat exports, while in 2017/18 and 2019/20 the market share has increased to a near 40%- yes 40%! As importance increases for Black Sea supplies, so does the need to manage this price risk. Historically speaking, Chicago corn and wheat and Matif wheat have been used as a cross hedge. At times it has been an effective hedge for those wanting to mitigate Black Sea price risk, but as export volumes increased the need for a stand alone hedge remained a legitimate argument. In 2012 the CME launched a Black Sea wheat futures contract that allowed for physical delivery based on a few Black Sea delivery locations spanning from Romania, Ukraine and Russia. Due to the difficulties in operating delivery, origin, and quality differences, the contract nev- er gained momentum that the market was looking for. A few contracts traded but nothing with substantial size or interest. There is a reason why the U.S., for example has three wheat contracts; Soft Red Winter (Chicago wheat), Hard red Winter (Kansas Wheat) and Spring Wheat (Min- neapolis wheat). This brings us to today. Since December 2017, the CME launched a financially settled Black Sea Wheat (BWF) and Corn (BCF) contract. The contract financial- ly settles against the spot physical price published by PLATTS. The spot price per wheat is reflected of load- ings 28-42 days out via FOB Novo 12.5 pro wheat, min 25kmt, max 60k mt. This reflects Russian origin; soft wheat 12.5 pro, TW min 77 KG/hl, max moisture 14%, min Wet Gluton 25%, min W number of 180, min Hag- berg FN of 250 seconds, max Bug Damage 1.5% and max FM of 2%. If a Russian FOB number is unavailable, other Black Sea origins FOB prices would be used to back to a Russian FOB equivalent. The spot price per corn reflects loadings 28-42 days out via FOB Ukraine Panamax port (Odessa, Yuzhny, and Chornomorsk). Min 15k, max 60k mt. This reflects Ukraine origin, Max mois- ture 14.5 %, max broken kernels 5%, max damage 5%, max FM 2%. Both wheat and corn contracts are 50 mt per contract and are listed out 16 months. Options are also available for market participants (12 months out) to