KAN’ON SUITE  

What are the origins of futures markets and to what extent are they used
in the agricultural sector?

In 1992, CAP support for the cereals and oilseeds market ceased, triggering market deregulation. The aim was to modernize agriculture and develop production while maintaining protective mechanisms (stocks and intervention prices). This deregulation has brought national markets with low correlation into a global market. Prices initially fell, then became highly volatile. In France, a group of eminent operators, including Claude Plantureux, worked hard to offer the agricultural sector both hedging and premium contracts. The rapeseed futures contract was born (1994), then the milling wheat contract (1996), then the corn contract (1998) on the Marché A Terme des Instruments Financiers (Matif). The working group was firmly convinced of the advantages of such a market, but the rest of the agricultural sector was less so. Years of dialogue, arguments and demonstrations were required to overcome misunderstandings and reluctance to change. In 1998, the market began to evolve, and in 2003 it accelerated considerably. In 2015, the total volume traded (futures and options) on the n°2 MATIF wheat contract is equivalent to three and a half times the European wheat crop, and five times the European rapeseed crop for the rapeseed contract.

According to a report by Sigma Terme, in 2017 around two-thirds of contracts were hedged on futures markets. Premium contracts have also greatly expanded. The landscape of storage organizations has also evolved, with the emergence of marketing unions. Price risk management has become a major challenge, requiring dedicated resources.

Today, there are dozens of marketplaces worldwide: Euronext (formerly known as Matif, located in Paris), CME (Chicago), ICE EUROPE (London), MDEX (Kuala Lumpur)…

EURONEXT is Europe’s benchmark market for 3 major products: wheat, corn and rapeseed. Numerous attempts to create markets have proved complex, with products that are too non-standard and/or low-volume. On a global level, for the year 2022-2023, wheat collection has reached 763 million tonnes, which is far from being the case for other products such as corn, durum wheat or sunflower.

On Euronext, operators trade batches (50 tons) of standard products with clear quality characteristics (such as protein content). Quotations displayed include the July-based mark-up (storage) and settlement must be made in Rouen. Eight maturities are permanently quoted over the months of September, November, January, March and May.

Whether on Euronext, CME or ICE, a multitude of different contracts are possible.
To name but a few:

Futures contracts (forwards): simple hedging contracts in which the trader takes a position on the futures market. His position has to be the opposite of the one held on the physical market.

Premium contracts: contracts for the exchange of physical flows where buyers and sellers agree on quantity, quality, place and time of delivery. They do not agree on a price, but on a premium. Each takes a position on the futures market, at the high for the seller, the low for the buyer. They also agree on a date for exchanging lots (Against Actual). The actual price for the seller is therefore made up of the sale of Matif lots plus the premium. The actual purchase price is made up of the purchase of Matif lots plus the premium. Today, the premium contract is the most widely used in France, covering over 70% of sales.

Options contracts: traders use these contracts to hedge against a possible rise or fall in the market. They range from vanilla options (CALL/PUT) to much more complex exotic options. Options have been widely used by professionals for years, and are now offered to farmers. (cf. Agrimarket)

Futures markets have revolutionized the world of agriculture. They have structured the sector and enabled the various players to limit their risks:
– Sellers of raw materials (farmers) are guaranteed a selling price higher than their production costs.
– intermediaries (cooperatives/traders) secure their margins
– Buyers (manufacturers) control their purchasing costs.

In 1994, Claude Plantureux was not only involved in the creation of the rapeseed contract and the development of the premium contract via his brokerage firm. With his IT company, Logaviv, he created WPRIOP, a position management tool. In 1994, Logaviv’s 4 employees began developing a tool to automatically manage a trading position, integrating and valuing physical and futures (buy/sell) contracts.
Wpriop provided operators with real-time visualization of key indicators such as average purchase price, sale price and volume at risk.

Wpriop has established itself as the leading solution on the French market, used by a large number of operators in the grain and oilseed sector. It has been developed for over 25 years by Logaviv. In 2020, Logaviv became Grainbow. The group launched the development of Kan’on suite, the redesign of Wpriop on new technologies in a global solution including a business ERP. Today, with its 61 employees and the acquisition of Genèse Informatique, Grainbow’s ambition is to bring new technologies to the agricultural sector. The group has evolved over the years while retaining its roots, its values and its expertise, as illustrated by the management board made up of 4 people, each with over 20 years’ seniority in the group.

(Sources : French Ministry of Agriculture, Terre-net, SigmaTerme Euronext, LeMonde, ) ​