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Ukrainian holding trades first option on Black Sea Corn swap

The first ever option contract on the Black Sea Corn traded between two Ukrainian companies Thursday, according to the company that brokered the deal, SCB & Associates.

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The call option (premium) was priced at $1.80/mt with a strike price of $170/mt, maturing in March on S&P Global Platts Black Sea Corn index.

The buyer of the option will receive the difference between the daily average of Platts price for the March 18 and the strike price, against the premium paid.

The seller of the option was Ukrainian trader Spike Trade, which sold the call to Ukraine's Agroholding MHP.



Spike Trade was also the first company to trade the Black Sea corn swap with Solaris Commodities in October.

Black Sea Corn swaps have been listed by CME as cleared futures since December 18.

The deal's significance is underlined by market participants' will to bring more sophisticated products to the Black Sea corn market and increase the involvement of companies in the Ukrainian domestic market.

"The deal really highlights the new ways to capture the potential of the physical market," a source with one of the counterparties said. "Using the option contract, MHP can lock in profit at $170/mt for March, which is where they would want to sell... the premium [at $1.80/mt] is a small cost to pay versus the cost of the possibility really."

Low price volatility in recent months, coupled with bearish sentiment into the New Year, makes call options an attractive mechanism for farmers and corn sellers alike.

FOB offers are already under some pressure, while logistical costs within the Ukraine are rising, narrowing margins.

The option, which was traded over the counter, was brokered by SCB & Associates and will be settled against the average over March of Platts FOB Black Sea Corn price assessment, which is based on Ukrainian corn.

Ukrainian corn is often considered the benchmark price in the Black Sea region due to its export volumes and standard quality.

As a result, it can act as a proxy for all the corn exported out of the Black Sea region.

Because Platts Black Sea Corn reflects the price of cargoes loading in 28-42 days, the March option will represent cargoes loading between April and May.

The daily Platts Black Sea corn tracks the value of Ukrainian corn export cargoes, normalized to a standard definition of Handysize vessels loading out of so-called Panamax Ports in Ukraine.

--Andrei Agapi, andrei.agapi@spglobal.com
--Stephanie Wilson, stephanie.wilson@spglobal.com
--Edited by Jonathan Fox, jonathan.fox@spglobal.com