Hackett Advisors in the News

By Marvin G. Perez - April 12, 2012

ICE Futures Expands CME Rivalry With Plan to Offer Grains

IntercontinentalExchange Inc. (ICE) (ICE) plans to offer futures and options in U.S. grains and oilseeds, expanding competition with CME Group (CME) (CME) Inc., the leader in agriculture products.

Futures in corn, wheat, soybeans, soybean oil and soybean meal will debut May 14 on ICE Futures U.S., subject to regulatory review, Atlanta-based IntercontinentalExchange said today in a statement. The contracts will settle on a cash basis linked to prices on CME Group’s Chicago Board of Trade.

Sugar, coffee, cocoa, cotton and orange-juice futures currently trade on IntercontinentalExchange’s electronic platform. ICE Futures U.S., formerly the New York Board of Trade, ended futures floor trading in early 2008. The Chicago- based CME Group, owner of the world’s largest futures market, offers both pit and electronic trading. The two companies also offer competing energy contracts.

“Customers over the past several months have approached ICE about providing an alternate execution and clearing venue for grain products currently listed exclusively on the CBOT,” Lee Underwood, an ICE spokesman, said in an e-mail. “We believe ICE will provide value to this market by offering an alternate pool of liquidity, similar to what we did for the energy markets almost a decade ago.”

This year, total volume on corn futures in Chicago has averaged 335,000 contracts a day, according to data compiled by Bloomberg. The average in sugar futures, the biggest agriculture contract on ICE, is 110,000 contracts.

‘Why Trade There?’

“We don’t need another corn market,” said Shawn Hackett, the president of Hackett Financial Advisors in Boynton Beach, Florida said in a telephone interview. “The corn-futures market is the most liquid in the world, it sets the global price, and it’s very efficient. Maybe ICE thinks they can get market share from the CBOT, but why would anyone want to trade there?”

CME Group’s agricultural prices “are global benchmarks that continue to offer the deepest and most liquid markets to customers around the globe,” Chris Grams, a spokesman, said in an e-mail. “We believe competition is good for business, and we will continue to work with our customers to meet their needs for agriculture-risk management.”

MF Global

The bankruptcy of MF Global Holdings Ltd. roiled futures markets late last year, and CME Group will require brokers to report daily customer fund levels effective May 1.

An estimated $1.6 billion in client money related to the MF Global (MF) (MF) bankruptcy is still missing.

ICE may be trying to “take advantage of the CME’s current issues surrounding the MF Global debacle,” Sterling Smith, a market analyst at Country Hedging Inc. in St. Paul, Minnesota, said in an e-mail. “One market in the U.S. is enough, so the success may be limited.”

CME Group also offers contracts in rice and oats on the CBOT. The parent company has cattle, hog and dairy futures on its Chicago Mercantile Exchange unit and offers coffee, cocoa, cotton and sugar on its New York Mercantile Exchange.

CME offered so-called softs contracts in New York to compete with ICE, and “it failed badly,” Smith said.

ICE said in February that net income rose 28 percent in the fourth quarter to $127 million from a year earlier. The shares (ICE) rose 0.5 percent to $134.13 at 4:15 p.m. in New York Stock Exchange composite trading. They have climbed 11 percent in the past 12 months.

In February, CME Group reported fourth-quarter profit that trailed estimates by analysts as volumes eased in late 2011.

CME Group rose 1.2 percent to $287.49. The stock (CME) has dropped 4.7 percent in the past 12 months. The company also offers contracts linked to interest rates and equity indexes.

ICE’s new grain and oilseed options are scheduled to start on May 15.


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