Chicago Board of Trade introduces swaps contracts for ethanol; derivative may ease transaction risk between producers, grain marketers

In Illinois, CME Group, parent of the Chicago Board of Trade, announced that it would commerce marketing and registration of swaps agreements for the ethanol industry. According to the CBOT, a typical swap would be between a grain marketer an an ethanol producer. The two parties sign an agreement for a forward swap and delivery (for example, 20 cents under the current June CBOT corn future price). At settlement in June, the ethanol producer pays the grain marketer 20 cents under the June futures price. In turn, the grain marketer pays the ethanol producer an average of the corn price for the last five days of May and the June CBOT futures settlement price. CME said that it aimed to eliminate default risk by centrally clearing the swaps contracts.

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