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.

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

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.

In June 2014, CME Group confirmed plans to launch a London-based cocoa contract by early 2015, as well as its plans to enter the European wheat market.[1] The cocoa contract will compete directly with ICE's Liffe London-based contract; both are sterling denominated and focused on the physical cocoa trade in Europe.[2]

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 hog futures.[3][4]

Trading hours for CME commodity products became an issue in 2012 when the exchange decided to extend trading hours for its grains contracts to meet market demand globally and compete with the Intercontinental Exchange, which offers similar grain contracts. On June 8, 2012, the CME Group announced it would extend open outcry hours on its trading floor by 45 minutes (from 9:30 a.m. - 2:00 p.m. Monday - Friday Central Time) to coincide with the exchange's Globex hours. Open outcry would also open at 7:20 a.m. on USDA crop report dates to allow trading before the release.[5] However, growing dissatisfaction with the new schedule among traders, who complained the longer cycle spread out volume and reduced liquidity, led the exchange revert to a shorter schedule in April 2013. Under the revised schedule, electronic trading will run from 7 p.m. CDT (2400 GMT) to 7:45 a.m. CDT (12:45 GMT) Sunday to Friday. Trading will pause for 45 minutes before resuming on the screen and in Chicago's open-outcry pits until 1:15 p.m CDT (1815 GMT). [6]

On October 3, 2014, the CME said that starting later that month it would cut trading hours in its livestock markets to as few as six hours a day on Fridays, from the current schedule of 23 hours on most days. Electronic trading in futures and options for live cattle, feeder cattle and lean hogs will be trimmed starting Oct. 27 and will run from 9:05 a.m. to 4 p.m. Chicago time on Mondays, 8 a.m. to 4 p.m. Tuesdays through Thursdays, and 8 a.m. to 1:55 p.m. on Fridays. The changes will not affect open-outcry trading hours, which run from 9:05 a.m. to 1 p.m.[7]

CME-Originating Commodity Offerings

* In July of 2011, CME announced its frozen pork belly futures had lost relevance and would no longer be traded. Trading in the bellies had shrunk to almost none, and volatility was too high. [8]

CBOT-Originating Commodity Offerings


Kansas City Board of Trade-Originating Commodity Offerings

CME Group acquired the KC HRW Wheat futures and options contract when it bought the Kansas City Board of Trade (KCBT) in December 2012.[9] In March 2014, mini-sized KC HRW Wheat futures began trading at CME.

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.

Other CME Group Product Areas

Resources

References

  1. CME confirms cocoa contract plan, EU wheat ambitions. Reuters.
  2. Global exchanges prepare to square off on cocoa market contracts. Reuters.
  3. "E-Livestock Options Demo". CME Group.
  4. "E-Livestock Quotes". CME Group.
  5. Open CME Open Outcry Hours. Reuters.
  6. CBOT's shorter grain trading hours to start Sunday. Chicago Tribune.
  7. CME Cuts Livestock Hours as Traders Welcome More Sleep. Bloomberg.
  8. Trade in Pork Bellies Comes to an End, but the Lore Lives. The New York Times.
  9. CME Group Completes Acquisition of Kansas City Board of Trade. CME Group.