Euronext is consulting the grain sector over whether to add a protein specification to its Paris-based milling wheat futures, in a response to efforts in France to raise wheat quality for export, the exchange operator said on Thursday. The wheat contracts are a price benchmark in Europe and a window for Euronext as it tries to grow in derivatives after being spun off by IntercontinentalExchange in an initial public offering that closed last week.
Representatives of the French grain sector came out against extra quality criteria when Euronext made changes to its milling wheat contract last year, citing the risk that more selective criteria would hurt liquidity on the futures market. But an agreement since then to include protein in physical market contracts had changed thinking, Olivier Raevel, head of commodities at Euronext, told Reuters.
"We asked the question again recently and we are in the process of gathering feedback," he said by telephone. The French government has made mandatory a sector agreement to specify wheat protein content in commercial contracts, a requirement to be phased in from July. This forms part of a so-called protein plan aimed at reversing a decline in wheat protein - a key criteria used by wheat buyers to judge milling quality - that could harm sales for the European Union's largest wheat exporter.
"...the grain sector as a whole is studying the way in which the implementation of this protein plan could be extended to include also the Euronext contract," Raevel said. Introducing a protein specification on the Euronext contract would take time, as the exchange operator would first need a consensus in the market and would then face the issue of delivery positions that are already trading, he said.
Euronext is not entitled to change its contract for positions that are already open, which would mean the earliest it could add a protein standard would be at the start of 2017. If the sector wanted to move more quickly, it would have to ask the authorities to approve a contract modification including open positions, which would also be a lengthy process, he said.
Debate over quality requirements and other specifications relating to the Euronext wheat contract has been fuelled by controversy over the delivery silo used by the exchange, as well as a push by CME Group to get a foothold in Europe. CME Group, the world's largest futures exchange operator, has said it is considering developing its own French-based milling wheat contract or forming an alliance with Euronext.
Raevel declined to comment on CME and its European plans. Unigrains, an investment fund controlled by cereal farmers, decided to buy shares in Euronext's IPO in a gesture of support for the French and Paris-based structure of the wheat futures. Unigrains Managing Director Pierre-Olivier Drege confirmed that the fund had taken part in the IPO as part of a group of smaller investors that each invested 1-5 million euros.
The idea of a protein specification for Euronext's wheat contract is backed by Unigrains and has the support of French growers, Drege said. However, an attempt to introduce a protein requirement before 2017 would also have to take into account the views of international operators beyond core French users, Drege added. "There are people who trade on Euronext and who are based in Malaysia or the United States. It has to be seen how this issue can be handled legally because we don't represent them."
The dominant influence of the French grain sector in the Euronext wheat market, also known by its former French name Matif, is regularly criticised by futures brokers. Senalia, France's largest grain export silo located at the northern port of Rouen and currently the sole delivery point for Euronext wheat, has notably been criticised for implementing its own quality criteria to safeguard export sales. Senalia's conditions, which it is legally entitled to set, were in line with common milling standards in France, Raevel said, adding that Euronext had already moved to reduce reliance on Senalia by adding two new delivery points - one in Rouen and one in Dunkirk, that will come into service in the year ahead.
