Uncertainty is something that farmers are used to, but the number of risks that farmers face seems to increase each year. CME Group is always looking for new ways to help producers manage risk. Tim Andriesen CME Group Managing Director of Agricultural Products, shares more about CME Group’s latest product, which provides more flexibility to producers.
“We are excited to introduce New Crop Weekly options, which is a combination of the attributes of our Short-Dated New Crop and Weekly options products. Options have become increasingly popular over the last few years as market participants are looking for new ways to lock in high prices while still benefiting if prices go higher later. CME Group has offered standard options since the 80’s, but over the last ten years have introduced short term products, which are proving extremely popular with producers. First were Short-Dated New Crop options which reference the new crop contracts, but they expire every month during the growing season. Then we launched weekly options on the nearby futures, providing an even shorter time to expiring, in this case, from 28 days down to just a few days, expiring every Friday. We’ve incorporated the key value proposition of both of these to develop New Crop Weekly options, which just began trading last month.”
So that means producers can gain new crop exposure, but the options will expire every Friday instead of at the end of the month.
“That is exactly right. New Crop Weekly options are on December Corn futures and the November Soybean futures, and expire Fridays from February through August.”
Andriesen explains the benefits of using New Crop Weekly options.
Early in the year, volatility is historically lower for the new crop contract compared to the old crop, so that means that New Crop Weekly options should be less expensive than the Standard Weekly options. Also, New Crop Weekly options offer just days of coverage on new crop, so that means it’s a much shorter time value built into the price. Again, this should reduce the premium cost. Where we expect to see producers use these is around market moving events, like the upcoming release of the F the Perspective Plantings report at the end of March. February’s also an important month because its when corn and soybean projected price for the federal crop insurance is set. This is another example of where a producer could utilize the flexibility of these options. If you are looking to manage risks around these type of events or even over a hot-dry summer weekend, these are designed to help you do that.”
Andriesen adds you can learn more online; “I always believe that its really important for producers to have a good broker or marketing advisor, so if they don’t have one, find one. Second, we have a lot of great tools on our website about all our products, especially our options product page where they can learn more about the different attributes and benefits of all of these products we talked about.”
Again, find that information on the CME Group Website, CMEGroup.com.