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Peculiarities of Russian Wheat Futures
Private investors have increasing opportunities to operate on the commodities market in Russia. Trade in wheat futures was begun on the National Commodities Exchange on April 9. With continually increasing demand for grain on the world market and high interest in biofuels, grain prices are unlikely to fall. The price for grain on the world market rose from $185 to $300 per ton between June and December of last year. It rose to $450 in March, but has since dropped to $300 again. Prices in Russia follow world prices.
The Russian domestic market is subject to governmental regulatory efforts such as prohibitive customs duties and market intervention. At present, interventions are made at the level of 5000 rubles ($210) per ton, although July contracts are quoted at over 6600 rubles (about $280) per ton. September contracts are quoted at 5700-5800 ($240-245) per ton. Contracts can be made on FOB (free onboard) terms at the Port of Novorossiisk or EXW (ex works) at the grain elevator in the Southern Federal District. Contracts are due in June, September and November on wheat of the 3rd and 4th classes. All contracts are deliverable, that is, the seller of the contract has to deliver the wheat.
A standard contract is made for 65 tons of grain (one railway wagonload). The deliverable lot on EXW terms is 520 tons, that is, eight contracts. On FOB terms, it is 3 tons. A minimum security deposit of 58,500 rubles for EXW deliver and $2400 for FOB delivery is required to purchase a contract. The maximum leverage on current prices is 1:6-1:7, depending on the term of the contract. Brokers advise limiting oneself to leverage of 1:3-1:4, however, to avoid forced closure of contracts if prices change for the worse.
The low liquidity of this segment of the futures market limits operations. The volume of trading on each of the contracts rarely exceeds 10 million rubles. Transactions do not exceed ten per day and the number of open positions also does not exceed ten contracts. Deals have not come to delivery so far. National Commodities Exchange director Sergey Naumov says that deposits will be increased as delivery dates near. At the final trading session before a contract is due, the deposit will be four times its original size as a guarantee of delivery within 15 days. The counteragent and specific elevator where the transaction will take place are determined then. The final price may vary from the price set on the exchange by 5 percent depending on the distance of the elevator from the Port of Novorossiisk.
www.kommersant.com
All the Article in Russian as of May 21, 2008
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