This document discusses the characteristics that a market needs to support a futures market. Specifically, it states that the underlying spot market must have significant pricing influence, be tradable with multiple buyers and sellers, and have standard quality specifications and sufficient infrastructure for delivery. It provides examples of demand markets and gateway markets that typically meet these requirements to serve as the basis for an agricultural futures contract.

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Tim Andriesen,
Managing Director, Agricultural Products
CME Group
From Spot to Futures
B

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 There is a spot price at every point grain is delivered.
 Many of these markets are simply “freight off” of other
more significant markets.
 To support a futures market, the spot market has to have
significant pricing influence.
 These are typically Terminal Markets:
 Demand Markets: Where grain is consumed or transformed.
 Gateway Markets: Where grains is concentrated for shipment.
A Market Must Have Price Influence
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Price Influence….
3
What is grain
worth here?

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Domestic Demand Market
4
Grain
Processor

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Terminal market for export
5
Barge
Terminal
NOLA (Export)

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The “better of”
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Grain
Processor
Barge
Terminal

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• While some markets have significant price influence, they
are not all “tradable” by market participants.
It Must Be Tradable
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Destination
Demand markets
are difficult to trade
as one or two
market participants
may have control
over the price.
Multiple Seller – Few Buyers
8
Grain
Processor

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Multiple Sellers – Multiple & Buyers
9
Delivery
Locations
6 to 7 barges
(Daily Load-out)
5 barges
(Daily Load-out)
Less than 5
(Daily Load-out)

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• There are logical and reasonable units sizes (trucks, rail cars, barges).
• There is a common quality specification.
• The price in the physical market is reasonably transparent (brokers
help).
• There is sufficient transportation infrastructure to deliver and load out.
It is better if…
10

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Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken
by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and
swaps each are leveraged investments and, because only a percentage of a contract's value is required to trade, it is possible to lose more than the
amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without
affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.
All references to options refer to options on futures.
Any research views expressed those of the individual author and do not necessarily represent the views of the CME Group or its affiliates. The
information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any
errors or omissions. All examples are hypothetical situations, used for explanation purposes only, and should not be considered investment advice
or the results of actual market experience.
All matters pertaining to rules and specifications herein are made subject to and are superseded by official rulebook of the organizations. Current
rules should be consulted in all cases concerning contract specifications
CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago
Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New
York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity
Exchange, Inc. All other trademarks are the property of their respective owners.
Copyright © 2017 CME Group. All rights reserved.
Disclaimer

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