CME to launch sorghum basis futures contract next month

CME Group CME.O will launch a new sorghum basis futures contract next month, pending regulatory review, with trading expected to begin on August 24, the exchange operator said on Tuesday.

Sorghum is a drought-tolerant grain grown mostly in the U.S. Plains. Like corn, it is used to produce animal feed and biofuel.

Sorghum prices are usually quoted as a premium or discount to CME's actively traded corn futures contract, a price difference known as the basis. The new sorghum basis contract will aim to help farmers, traders and exporters manage their basis risk following recent sorghum basis volatility, CME said.

“In recent years, the sorghum-to-corn cash spread has experienced considerable volatility, swinging from sharp premiums to steep discounts. The Sorghum futures contract will provide market participants a precise instrument to hedge that basis risk,” said John Ricci, global head of agricultural products at CME Group.

The contracts will be physically delivered, with the grain to be loaded out by truck or rail from a network of elevators in top sorghum-producing state, Kansas.