October 2, 2007

Hungarian bourse launches trade in grain warehouse warrants

The Budapest Stock Exchange Monday (October 1) launched trade in public warehouse warrants for grains to provide alternative ways for grain trade as European Union corn intervention is drying up, Hungarian farm minister Jozsef Graf said.

Because of severe droughts, Hungary's grain crop will only be about 9 million tonnes this year as against the 14 million to 15 million tonnes seen in the previous years so "this new mechanism won't be fully functional this year but we have to get prepared for the normal (crop) conditions," Graf said at a press briefing.

"The system of EU grain intervention won't continue to operate and the producers, traders and grain consumers needed a system (to find each other)," Hungaria Kozraktarozasi Zrt. Chief Executive Laszlo Szabo said.

The trade of grain warehouse warrants is a unique bourse product in Europe, bourse Chief Executive Arpad Pal said.

The warrants also serve as collateral for bank loans farmers regularly take out to finance a given year's crop.

In an average year with a grain crop of over 10 million tonnes, between 2 million and three million tonnes of Hungarian grains are expected to trade via the new product, the executives said. The new product is also expected to attract interest from neighbouring Central and Eastern European large grain producers such as Romania and Bulgaria, they added.

The advantage of the new product to the spot trade of grains is that "it provides a wider offer of goods and also an opportunity in a search to specify the geographical area," Gabor Bidlo, managing director at Hungaria Gabona, told Dow Jones Newswires.

The advantage of the new product versus grains futures trade is that the warrants guarantee the quality parameters of the grains whereas the grain quality specifications of grain futures are limited, Bidlo added.