From The Federation of Oils, Seeds and Fats Associations’ Newsletter

January 05, 2010

European Biodiesel Swaps

The palm oil endeavour follows the successful launch of European biodiesel contracts earlier this year, to offer price risk management to this relatively new industry and large new consumer of vegetable oils. These include biodiesel swaps for FAME 0 (fatty acid methyl ester), RME (rapeseed methyl ester), SME (soy methyl ester) and PME (palm methyl ester). The contracts are based off of Argus Media prices and cleared through CME ClearPort. Launched in late March, the cash-settled RME biodiesel swap already has open interest over 3,000 lots. Volume skyrocketed to 2,850 lots in November 2009, more than seven fold above the previous month on the back of growing customer acceptance. “Swaps are the way forward,” says Jason Cole, Agricultural Derivatives and Ethanol Broker with StarSupply Renewables in Geneva. “They offer liquidity the physical market cannot provide”.

Soybean, Corn, Wheat Swaps

In the past year, CME Group has also launched corn, wheat and soybean calendar swaps. As of early December, nearly 7,000 of those swaps had been cleared.

Dealers can submit over-the-counter (OTC) or off-exchange transactions through CME ClearPort, where CME Clearing becomes the counterparty to both sides of the trade, thus guaranteeing it. This means the buyer and seller no longer have credit exposure to one another and credit lines are freed for employment elsewhere. “Cleared swaps enable simplicity of hedging while streamlining credit issues”, adds Cole. “This expands the number of people you can trade with”. Parties using CME ClearPort can also close out transactions with whoever provides the best price, cutting out the need for multiple bilateral agreements.”

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