CME Group commodity products

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CME Group offers trading in futures and options products on key physical commodities, including grains, oilseeds, livestock, dairy, lumber and other products. Most of CME Group's commodity products are available to be traded electronically and via open outcry on the trading floor. More recent commodity product listings are traded electronically only.

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Although they are not CME Group-listed products, on the commodity side NYMEX Softs – coffee, sugar, cocoa and other products – are also offered on the CME Globex electronic trading platform resulting from a 2006 agreement between NYMEX and CME.

Contents

History

Early History

Trading of commodities on an organized exchange began in Chicago in the mid-1840s to meet a need. Geographically at the center of the midwest grain harvest, Chicago began to emerge as the market center for farmers in a number of neighboring states. At harvest time, farmers converged on Chicago to sell their grain. There was often so much grain that the farmers had to dump large quantities into Lake Michigan because there were not enough buyers and no way to effectively store it. By the time spring rolled around, however, the supply/demand equation changed, and grain was in short supply.

Even if farmers had been able to store some of the grain, they couldn’t bring it to the city in the winter because the rivers were frozen and they were unable to transport it by barge. By springtime, trails were so muddy that wagons would get stuck. Due to these difficulties, there was an excess of grain in the fall and severe shortages in the spring. This forced the farmers to lower their prices to induce grain merchants to buy their grain. But in the spring, when supplies were all but depleted, demand for grain was so great that prices began to rise astronomically.

There needed to be a better way to handle commerce. A few of the more savvy grain merchants decided to band together in 1848 to form an organized grain exchange — the Chicago Board of Trade (CBOT). The CBOT provided a central meeting place where buyers and sellers of grain could come together to conduct business. With a formal exchange operating, wealthy investors saw an opportunity to build huge silos to store the grain for year-round consumption. This helped smooth out grain supply problems and helped bring a certain measure of price stability to grain over the course of the year.

Emergence of "CME"

The success of the CBOT inspired others to create exchanges that would assist in the process of buying and selling futures contracts on other farm products. In 1874, merchants formed the Chicago Produce Exchange, later named the Chicago Butter and Egg Board. In 1919, the name was changed to the Chicago Mercantile Exchange (CME). Commodities traded at the exchange throughout the early years were butter and eggs, and later, trading in hides, onions and potatoes were added.

During the 1950s, CME also began trading contracts on turkeys and frozen eggs. In 1961 CME introduced a new contract that put the exchange on the map — frozen pork belly (bacon) futures. Later came the first futures contracts on live animals -- beginning in 1964 with live cattle. Live hogs (today known as "lean hogs") and feeder cattle futures followed in the same tradition.

Today's Ag Futures/Options Markets on CME Group

Today, in addition to long-traded grain, oilseed and livestock products, CME Group offers contracts on a variety of dairy products, as well as other commodity categories including ethanol, lumber products and commodity-based indexes. On Sunday, Jan. 13, 2008, CBOT wheat, corn, soybeans, soymeal, soyoil, rice, oats, ethanol and South American soybean contracts migrated from the eCBOT trading platform to the CME Globex electronic trading platform.

Through 2007, the acceptance of electronic trading (versus open outcry) of CME Group commodities has been more pronounced for CBOT legacy commodities than for CME-originated commodities, where the majority of active livestock products were still traded by open outcry. E-Livestock trading is available for live cattle, feeder cattle and lean log futures.[1][2]

CME-Originating Commodity Offerings

* After years of CME having a public persona that included pit trading in pork belly futures, CME Group determined that in 2008 when agricultural products moved to the CBOT floor, pork bellies would be traded solely on CME Globex. However, the decision was reversed in early 2008; thus, pork belly futures, which now trade only about 200 contracts a day, will be accommodated as part of the lean hogs pit when the move is complete.[3]

CBOT-Originating Commodity Offerings

Regulation and Clearing

Regulated by the Commodity Futures Trading Commission, CME Group's commodity product customers deal anonymously in a fully transparent market, where large and small customers have equal access to the same prices and same deep pool of liquidity. A central futures clearing mechanism, CME Clearing, settles all trades and acts as the counterparty between buyers and sellers, thus virtually guaranteeing the creditworthiness of every transaction.

News

Other CME Group Product Areas

Resources

References

  1. ↑ "E-Livestock Options Demo". CME Group. Retrieved on Jan. 19, 2008.
  2. ↑ "E-Livestock Quotes". CME Group. Retrieved on Jan. 19, 2008.
  3. ↑ ""CME Keeps Pork Belly Trading Alive,” Feb. 2, 2008. Chicago Sun-Times. Retrieved on February 4, 2008.
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