Indiana Grain Company, LLC

Posted: 11/22/11

By: tomgrisafi

This close to Thanksgiving, a lot of traders can already smell the turkey.

But some can also smell the biodiesel.

As it turns out, CME Group has listed the first-ever US biodiesel swap future (subject to the rules and regulations of the New York Mercantile Exchange (NYMEX)) based on Houston biodiesel prices published by international energy price reporting agency Argus.

The new swap future is the first US-based biodiesel derivatives market instrument to launch in the US. The swap future reflects the value of Houston barge and rail volumes of soy methyl ester with 100 percent purity (SME B100). The listing of the swap future follows the successful launch of the Argus Rotterdam biodiesel swap future, which reflects the FAME 0 degrees C CFPP grade and has become the benchmark biofuels financial instrument in Europe. Argus price indexes are also used in two other Rotterdam biodiesel grades for Rapeseed (RME) and Palm (PME). In addition, Argus price indexes are used in several other successful US-based cleared swap futures contracts, such as those in LLS crude, Gulf coast ULSD, Gulf coast jet fuel and others.

The retroactive renewal of the US biodiesel tax credit last year has jolted the stagnant industry back to life. US monthly biodiesel output has hit record-high levels for six consecutive months, according to the latest data from the Environmental Protection Agency. The industry is on track to exceed the Renewable Fuel Standard's requirement to produce 800 mn US gallons of biodiesel this year.

The dramatic growth seen in the biodiesel marketplace has accelerated the need for sophisticated hedging tools. Argus recently expanded its US biodiesel coverage to include a daily heating oil-soybean oil spread as well as reporting basis differentials and cash prices for both Chicago and Houston markets. Participants in the biodiesel market have recognized Argus' strong biodiesel coverage and pushed for a cleared swap futures based on Argus' prices.

"We are pleased that CME Group has introduced this new instrument, which will help expand risk management and trading opportunities for biodiesel in the US market. We wish the exchange every success with their new contract," Argus Media chairman and chief executive Adrian Binks said.