Mexican Derivatives Exchange Sees Local Corn Contract In 2012

The Mexican Derivatives Exchange, or MexDer, expects to list a local corn contract late next year linked to the Chicago Mercantile Exchange, or CME, as part of plans to give Mexican producers and consumers greater hedging opportunities, the exchange's top executive said.

MexDer Chief Executive Jorge Alegria said the contract, which would be settled in pesos and include a local delivery point, is a step toward the creation of a soft commodities exchange in Mexico. It would apply to white corn using the yellow corn price as a reference, and Mexican players could participate without foreign intermediaries.

Alegria, who referred to the contract as a CME "look-alike" contract, said in an interview that officials have been envisioning a soft commodities exchange since MexDer was created in 1998. As agricultural market players now have a better understanding of risk management, and hedging has become more widespread, the current timing appears right, he added.

The aim is to increase the participation of Mexican banks, companies and producers in the futures market. For the past decade, the Mexican government has been partially subsidizing hedging of corn, coffee and other commodities on CME through the Agriculture Ministry's trade service Aserca. However, participants have to go through foreign banks and trade in dollars.

Since April, Mexicans have been able to access the CME through MexDer via an order-routing agreement, and this year MexDer will begin publishing CME transactions among agricultural producers, companies and banks.

"At this first stage, the role of MexDer will be more like an information repository or data publisher of transactions, but they [trades] will not take place in MexDer," Alegria said.

By the third quarter of 2012, officials plan to start listing agricultural products in a new MexDer commodities section, using corn as a starting point given the importance of the grain in Mexico. The number of contracts that will be involved has yet to be determined.

The contract would be linked to the price of yellow corn on the CME and include a differential at settlement that takes into consideration white corn market factors. Mexico is the largest producer worldwide of white corn with output at more than 18 million tons. The country imports close to 10 million tons of yellow corn each year, using it for livestock feed, while its white corn output is used mostly for human consumption. Only yellow corn contracts exist on the CME, but the price of the two grains are highly correlated.

If the use of the "look-alike" contract proves successful, Mexican officials would consider creating a local soft commodities exchange independent of the CME, which could incorporate other products such as coffee and cotton.

"The idea of listing our own contracts based on conditions locally is possible if we succeed in adapting international liquidity and we succeed in bringing players from the U.S. to the Mexican market," Alegria said. He added that there have been substantial expressions of interest among foreigners in trading agricultural commodities through MexDer, as there have been in its other benchmark contracts such as interest rates and currency futures.

-By Jean Guerrero, Dow Jones Newswires; (5255) 5980-5180; jean.guerrero@dowjones.com

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