CME Group, the US derivatives marketplace, is to launch a US dollar-denominated, cash-settled crude palm oil futures contract on May 23.
CME said in a joint announcement in Chicago and Kuala Lumpur that settlement prices on CME Globex, its electronic trading platform, would be based on the crude palm oil futures traded in ringgit on Bursa Malaysia.
Tim Andriesen, CME Group managing director of agricultural products and services, said the new derivative would provide an alternative method of hedging risk for food processors and other multi-national companies that use crude palm oil and trade in the US currency.
The use of the ringgit settlement prices is part of a strategic partnership agreement announced last year by CME Group and Bursa Malaysia under which the US group bought a 25 per cent stake in a derivatives subsidiary set up by the Kuala Lumpur bourse.
The deal is expected to lead to the listing of all existing and future Bursa Malaysia Derivatives’ products on CME Globex from the second half of 2010.
CME said the creation of its US dollar futures contract for palm oil would create opportunities for cross-trading with soybean oil, based on the historically strong correlation between these products.
Together, crude palm oil and soybean oil account for about 61 per cent of all the edible oil in the world, with palm kernel oil an additional 4 per cent of oil consumed.
Both production and consumption of palm oil are growing. The main producers of the oil are Malaysia and Indonesia, and the main consumers China and India.
Crude palm oil is widely traded and used around the world. It serves primarily as cooking oil but is also used to make soap, washing powders, personal care products and biodiesel.
CME said each futures contract contract would be equivalent to 25 tonnes of crude palm oil. Trading hours of the monthly contracts will be 5pm to 4pm Chicago time the following day, Sundays to Fridays inclusive, with a daily one-hour trading halt.
