CME Group, the world's largest futures market operator, purchased the Kansas City Board of Trade, tightening its grip on wheat trading at a time of heightened competition between exchanges.

CME, the operator of the Chicago Board of Trade, brought trading in wheat varieties accounting for well over half the US crop under its wing with the purchase of KCBT for $126m in cash, plus a one-off payment of excess cash to the Kansas exchange's members

The hard red winter wheat traded in Kansas accounts for a far bigger proportion of the US wheat crop than the soft red dealt in Chicago – although the extent of investor interest in CBOT wheat makes its contracts more liquid and more widely followed.

Indeed, Steven Campbell, the KCBT chairman, cited the "increasing operational demands and regulatory requirements" involved in operating an exchange for the decision to sell.

"It was deemed beneficial that the KCBT partner with an exchange with the technology, experience, leadership and resources of CME Group," he said.

Battle of exchanges

Mr Campbell added that the Kansas board had considered tie-ups with "a number of qualified interested parties", before settling for the CME deal, although he declined to name other suitors.

The deal comes amid heightened competition, and a land grab, between agricultural commodities exchanges, and notably between CME and Ice, the operator of New York's soft commodities markets.

CME in 2007, in its last substantial deal, beat Ice to the $11bn takeover of CBOT.  

Ice early this year began offering grain and oilseed contracts based on benchmark Chicago peers, and traded over extended hours, prompting CME to extend the trading day at CBOT.

Ice has also expanded into grains and canola in Canada, where the deregulation of crop marketing is allowing farmers choice over where to sell, while CME earlier this year launched futures in Black Sea wheat, and has applied for consent for an exchange in London.

'Increasing emphasis on technology'

The competition has weighed on margins at exchange operators besides fuelling a drive for fresh products, both factors which have favoured larger players.

In terms of sale prices for its Class A seats, which offer one share of ownership too, KCBT saw its fortunes peak when one went for aa record 725,000, well above the average of $477,059 last yer.

"Trading has evolved dramatically, with an increasing emphasis on technology in recent years," said Jeff Borchardt, the KCBT chief executive.

His CME counterpart, Phupinder Gill, said that the tie-up with KCBT would foster "cross-margining benefits and other capital efficiencies", as well as offering opportunities for product development "not only in futures, but also in options that can help market participants manage risk at a reduced cost during targeted timeframes in the crop year".
    


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