The New York Board of Trade has announced the launch of new world ethanol futures and options contracts beginning in May. The futures contract will begin trading Friday, May 7, and the options on Monday, May 10. The ethanol contract will trade alongside NYBOT's sugar No. 11 contract in the sugar pit.
“Over 60 percent of the world's supply of ethanol is derived from sugar,” said Frederick W. Schoenhut, NYBOT chairman, “so it's a natural fit to have the first-ever world ethanol futures and options contracts trade here at NYBOT alongside our benchmark sugar contract.
“We've created an interesting, new hedging and investment opportunity in a burgeoning market, and we encourage all those in the respective communities to investigate what this contract has to offer.”
FOB vessel delivery
The new contracts call for free on board (FOB) vessel delivery of 7,750 U.S. gallons of biomass-derived, undenatured, anhydrous ethanol meeting specific quality criteria as described in the contract rules. The contract also specifies 32 countries of origin, such as Australia, Brazil, the European Union, India, Thailand and the United States.
Priced in cents per gallon, the contract will list for trading the months of March, May, July, October and December. The ethanol contracts will trade from 8:50 a.m. to 12 p.m. (Eastern time).
Ethanol is an alcohol-based alternative fuel produced by fermenting and distilling starch crops that have been converted into simple sugars. It can be produced from any biological feedstocks such as sugarcane and corn. Most commonly used to increase octane and improve the emissions quality of gasoline, it has the potential to reduce dependence on oil.
U.S. federal legislation already includes provisions encouraging use of ethanol, and internationally, other nations are launching initiatives to increase the use and production of ethanol.
Global ethanol output is estimated at 10.2 billion gallons, and annual growth in output is projected at 5 percent to 10 percent until 2012.
Brazil, the world's largest sugar producer, furnishes 50 percent of the world's supply and has promoted sales of flex-fuel cars, which use alternative fuels and were introduced last March. Unica, a leading trade-group of sugar producers based in Brazil, has been an active partner in working with NYBOT on the details of its ethanol contract.
“We endorse the initiative of launching the ethanol futures contract at NYBOT since we believe it is a huge step towards the establishment of an international ethanol market,” said Eduardo Pereira de Carvalho, Unica's President. “We believe NYBOT's contract will give the baseline of standards and prices, as well as promote this bio-fuel worldwide.”
There is no clear price correlation between ethanol and other fuel manufacturing components, as ethanol does not track well with the octane market (gasoline).
“The industry told us they need an ethanol futures market, and we have responded with a balanced, tradable contract,” said Charles H. “Harry” Falk, NYBOT president and CEO. “Our ethanol contract is deliverable, free on board, and closely adheres to the industry's specifications. The contract standardizes quality, and comes in a smaller unit size, which enhances liquidity, along with the assurances gained from being traded on a public exchange.
“We think those in the ethanol, sugar, environmental, automotive, and futures communities will find interesting and unique hedging opportunities as this market develops.”