Q3 2019 Ag Update

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Suppose you have a large order to execute, but it does not appear to be supported by floor liquidity or bid-ask spread in the central limit order book (CLOB) There is another way you can get the order competitively executed in the CLOB – an R-cross order.

Crosses are a form of relationship-based trading (RBT) available to all Agricultural market participants. Crosses are similar to blocks, but instead of being executed off-exchange and submitted for clearing, crosses are executed in the CLOB.

With a cross, two parties can engage in allowable pre-execution discussions (either directly or through a broker) to agree on order size, price and direction. Once the terms are finalized, the cross order is submitted to CME Globex. The order first executes a pre-cross RFQ to ensure the best market is represented in the order book, then the cross trade is submitted. The order is filled at the agreed-to price, unless the price is bettered by another market participant.

Benefits

• Order quantity is executed in the CLOB and improves the market
• Ensures order execution at the cross price or better
• Executes specific, less liquid instrument types (e.g., a deferred contract month or less liquid strike)

Learn More

CME first listed cleared fertilizer swaps in 2011 for Urea, UAN, and DAP, however, not all customers could access the cleared swaps. In June 2019, Fertilizer futures were listed side-by-side with swaps to improve market access.

Key Features

• Financially settled against leading fertilizer price reporting agencies Profercy and ICIS
• Low minimum block threshold of 2 contracts (fertilizer broker directory)
• 100-ton contracts
• Include: Urea US Gulf, Urea Egypt, UAN NOLA, DAP NOLA, Urea Brazil, and MAP Brazil

Explore Fertilizer futures

The Agriculture Improvement Act was enacted last year, which dramatically changed the pricing formula for the skim milk portion of milk costs regulated by Federal Milk Marketing Orders. Previously, the “higher of the two” between Class III and Class IV milk prices were used to price skim milk, and that unknown led to basis risk. Now, the formula for skim milk is the simple average of the two contracts plus 74 cents. Hedgers now have a far more effective hedging tool to manage fluid milk price risk. Read on to find out how.

Find it here: Fluid Milk: A Better Hedge

Analysis of USDA data February 2000 through April 2019.