Wealth Club

CME Group, the largest futures exchange operator, is considering launching new contracts on Brazilian soyabeans as US-China trade tensions unsettle prices for the oilseed, its chief executive said.

Beijing hit US-grown soyabeans with a 25 percentage-point tariff increase in retaliation for duties on its goods imposed by the Trump administration. Brazil’s farmers have benefited as China seeks alternative supplies.

The shifts have pushed up the price of Brazilian soyabeans, with cargoes at the port of Paranaguá selling for $384 a tonne compared with $336 a tonne at the US Gulf of Mexico, according to Reuters.

While US farmers and merchants can manage soyabean price risks using CME’s Chicago-based futures contracts, no similar market exists in Brazil. A soyabean futures contract listed on the B3 exchange in Brazil has zero volume. Farmers typically make advance sales to a handful of international grain trading houses.

“There is really nowhere to get the liquidity in Brazil on a futures market or even a forward swap in agribusiness to lay off,” Terry Duffy, CME chief executive, said in an interview.

He said that Charles Carey, a CME board member, is “leading an effort to see how we can co-operate on a derivatives product between a Brazilian exchange and the CME”. He declined to identify the exchange.

CME already has a strategic partnership with B3 that includes the cross-listing of certain products, said a CME spokesperson. The cross-listing includes CME’s “mini-sized” soyabean futures contract.

The Chicago Board of Trade, a futures exchange acquired by CME in 2007, tried such a contract before but decided not to pursue it, Mr Duffy said.

One obstacle to creating a successful contract is that deals for international exports of soyabeans are done with a handful of trading houses. Such companies do not necessarily benefit from more transparent prices.

“For this to get the necessary traction I firmly believe the trading houses will need to be behind it,” said Pedro Dejneka, managing director of MD Commodities, an agricultural adviser with offices in Brazil and the US.

In July S&P Global Platts, the commodities information service, began publishing daily price assessments for soyabeans at the Brazilian ports of Paranaguá and Santos, as well as soyabeans delivered in northern China. CME already lists some cash-settled futures contracts based on S&P price indices.

Mr Duffy did not expect the US trade dispute with China to end soon and said he was “very” concerned about it, although does not expect it to develop into a full-blown trade war.

US President Donald Trump and his Chinese counterpart Xi Jinping are scheduled to meet at the G20 summit in Buenos Aires at the end of the month, raising hopes of a resolution that have put pressure on Brazilian soyabean prices in recent weeks.

“China is a very patient, communist nation. You are not dealing with Canada or Mexico when you are dealing with China,” Mr Duffy said. “China is not going to buckle.”