S&P Global Platts, the leading independent provider of information and benchmark prices for the commodities and energy markets, today announced that its Black Sea Wheat price assessment has been used as the settlement price for the first ever swap contract for Black Sea wheat. The swap was traded between Ameropa AG and Solaris Commodities S.A.

Thierry Bessede, grain trader at Swiss-based trading house, Ameropa AG said: “We’re always looking to manage our risks efficiently and this deal structure facilitates hedging in whatever volume and time frame the counterparties agree to and reduces the costs and risks involved in physical trades execution, which makes it a great hedging tool.”

Swithun Still, Director at Solaris Commodities S.A., a trader in specializing in Russian grain, also based in Switzerland added: “Solaris trades significant volumes of physical wheat via Novorossisk and can use this product as a hedge for our physical book. This swap settled against Platts’ price gives the opportunity to market participants to access this dynamic 12.5% protein Russian wheat market, which is such a benchmark for cash prices worldwide nowadays.”

Joachim Emanuelsson, Chief Operating Officer, SCB & Associates said: “SCB Group works hard to develop new hedging tools and markets for our customers worldwide. These swaps are flexible, effective and efficient hedging instruments that allow our clients to avoid the correlation exposure that exists using other methods. Financially settled swaps also allow access to hedging without exposing the trader to the risks and logistical constraints that come with a physical contract.”

The swap, which was traded over-the-counter, was brokered by SCB & Associates and will be financially settled against the April average of S&P Global Platts’ FOB Black Sea wheat (Russia, 12.5%) price assessment. Wheat with 12.5% protein content is considered the benchmark quality wheat in the Russian and Black Sea market as a whole, as it is the most actively traded. The swap will be settled against the April average of the Platts Black Sea Wheat price assessment. This assessment reflects Black Sea wheat exports, normalized to a standard definition of Russian 12.5% protein, loading on a FOB Novorossiisk basis in 28-42 days.

The Black Sea wheat swap is dollar denominated and is based on Russian milling wheat, loading in Deep Sea ports (FOB) and normalized to Novorossiisk, the value of which is tracked daily by S&P Global Platts on the export market. It comes just five months after a similar cash-settled swap traded for the first time for Australian wheat exports, using the Platts APW wheat price for settlement purposes.

The Black Sea region is a major global wheat trading hub. The region’s exports amount for 47.9 million mt in 2015-16 marketing year and are more than twice as much as exports from the United States and 1.4 times more than EU exports. Russian wheat exports accounted for 53% of Black Sea wheat exports and act as a pricing reference for Ukrainian, Romanian and Bulgarian wheat exports to third countries. Black Sea wheat is widely sold across the Middle East, Africa, Asia and Europe, and cash prices in this region are increasingly seen as a key bellwether in the global market.

Ian Dudden, Global Content Director, Agriculture, S&P Global Platts said: “this deal is a significant step towards the emergence of a new regional futures market for Black Sea wheat. In spite of its size, this major trading hub does not have a dedicated derivatives market reflecting its own supply and demand dynamics meaning physical market participants wishing to hedge are exposed to significant basis risk when using traditional risk management tools.”

Source: S&P Global Platts