October 17, 2011


Mexico to launch local grain exchange



In order to give local producers a new way to hedge risk in the face of volatile commodity prices, Mexico will launch its own grain exchange next month, the country's agriculture ministry said.


Ernesto Fernandez, an official at Mexico's Agriculture Ministry said that the plan is to begin trading the same products listed at the top US futures exchange in Chicago on the Mexican Derivatives Exchange (MexDer).


The exchange, to be located in Mexico City, would eventually expand to other Mexican-grown products not traded in the United States, like white corn.


Mexico is the world's largest producer of white corn, the variety used to make the staple tortillas eaten with almost every Mexican meal. Only yellow corn is traded in Chicago.


Fernandez said Thursday that the idea is for financial intermediaries to offer hedging tools (for products) that are not covered now.


Mexico lags Argentina's grains market in Rosario and Brazil's BM&FBovespa with no internal market to trade agricultural products.


Some Mexican farmers and food producers hedge their risk in Chicago through a government subsidy programme known as Aserca, which operates contracts on their behalf during specific trading windows.


The new exchange will use Chicago's CME Group Inc as a reference price but will take into account differences in the local market. The trades will be made in tonnes and Mexican pesos, helping to avoid losses from swings in currency exchange rates.


"Mexican producers make decisions in tonnes and pesos, not in bushels and dollars," Fernandez said.


The Aserca programme will continue to operate in the US but the local exchange will give producers more choices for hedging, said Fernandez.


"The volatility is severe and to deal with it you have to manage your risk," he said.


Food prices are likely to become more volatile in coming years, the United Nations said this month after hitting record highs in February.


In August, the CME Group and its Mexican counterpart unveiled a routing system that gives US traders access to MexDer's benchmark contracts, giving customers easy electronic access to futures based on stock indexes, bonds and currencies.


Fernandez expects it will take years for Mexico to create a strong local market but the country is taking the first steps.


"This will move little by little," he said. "Market depth does not come overnight."

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