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UPDATE 1-Euronext eyes decision on wheat quality terms by November
September 4, 2014 / 6:53 PM / 3 years ago

UPDATE 1-Euronext eyes decision on wheat quality terms by November

* Euronext considers adopting same criteria as delivery silos

* Exchange wants decision before Sept. 2017 futures open

* Market grapples with quality issues (Adds detail, background)

By Valerie Parent and Gus Trompiz

PARIS, Sept 4 (Reuters) - The Euronext exchange said it aimed to decide in the next two months whether to add new quality terms to its milling wheat futures contract <0#BL2:>, in line with rules set by silos to ensure delivery of suitable wheat out of a poor French crop.

Euronext’s wheat contract, a price benchmark in Europe, is defined as a milling wheat grade suitable for making bread. But traders see its current quality specifications as basic.

The prospect that much of the new French crop will be of lower, animal-feed quality due to heavy rain has intensified debate over what standard Euronext represents.

The exchange said last month it would discuss adopting the same wheat quality terms as the silos to bring greater clarity to the market.

It wants to decide on any changes before the September 2017 futures open for trading on Nov. 11, following the expiry of the November 2014 position, an official said.

“We hope the question will be settled before the expiry of the November futures,” Olivier Raevel, head of commodities at Euronext, told Reuters by telephone. “We would prefer not to have to suspend the opening of September 2017 futures.”

Euronext is not able to change contract terms for futures that are already trading, which currently includes positions for delivery up to May 2017, in line with its policy of offering a three-year trading horizon.

Last month, Senalia and Socomac, the operators of the silos that can take delivery of 2014 crop traded on Euronext, set requirements for Hagberg falling numbers and protein content, two wheat quality measures that are not included in Euronext’s contract specifications.

The silos’ move was welcomed by some operators who were worried that the milling wheat status of the Euronext contract was at risk, but was criticised by others as creating confusion by adding terms not in the actual futures contract.

Some traders say a sharp fall in open interest in Euronext wheat futures in the past month reflects uncertainty over the market’s quality specifications.

Raevel said August was typically a slower month because of operators taking summer holidays and stressed that volumes of milling wheat futures traded last month were up 7 percent versus the year-earlier period.


However, confusion over how the delivery silos’ policy related to the Euronext contract led the exchange to issue a technical market notice this week saying that its quality mechanisms had not changed.

The statement followed queries from participants about whether further price reductions could be granted for wheat not meeting the silos’ Hagberg and protein standards, Raevel said.

Euronext is not ruling out any proposals at this stage on how to modify the contract, he said, adding it was cautious about suggestions that the exchange launch a separate high-quality wheat contract, as this might dilute market liquidity.

Worries that more stringent specifications would hurt liquidity led operators to reject a proposal by Euronext last year to add a Hagberg requirement to its wheat contract.

But concern among exporters and millers about this year’s poor crop in France, as well as a longer-term decline in protein content, could generate more support this time.

France is expected to struggle to sell milling wheat to traditional overseas clients this season and traders have already turned to other European origins to meet domestic and export contracts.

Euronext said previously it would hold a meeting of experts in September to discuss adopting Hagberg and protein standards, but it is now planning an email survey in order to consult a wide international base of market users, Raevel added. (Reporting by Valerie Parent and Gus Trompiz; editing by Jane Baird and Keiron Henderson)

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