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Managing Black Sea Sunflower Oil Price Risk

With the launch of CME Group Black Sea (Platts) Sunflower Oil FOB futures2, physical market participants can now effectively hedge their exposure to volatile sunflower oil world market prices.

The main specifications of the contract are:

  • Cash -settled using daily Platts Black Sea sunflower oil physical cash assessment
  • Platts assessments basis Ukrainian raw sunflower oil, FOB Chornomorsk, 3,000 metric tonne parcels, loading one or two calendar months forward
  • 25 tonne contract size, in US$ per metric tonne
  • 12 consecutive calendar months available to trade

Assume that in August 2019, a Black Sea based sunflower oil crusher agrees with an Indian-based food processor to sell them 25kt of sunflower oil for FOB delivery in December 2019, at market price to be determined close to delivery. The Black Sea crusher is concerned that Black Sea FOB sunflower oil prices will decline between August and December and wants to lock in a price to protect their margin. By using Black Sea (Platts) Sunflower Oil FOB futures to hedge, the crusher can protect against downside price movements in the physical markets and is able to sell forward.

The chart below shows the historical Platts cash market prices for Black Sea sunflower oil FOB Ukraine since December 2018. The example below shows how a sunflower oil crusher could have protected themselves against the impact of falling prices by hedging with Sunflower Oil futures.

Futures of 25kt (1000 contracts)

Sells December futures @ $750/tonne

Buys December futures @ $680/tonne

Futures gain of $70/tonne

Physical of 25kt

Prices December physical @ $680/tonne

EXAMPLE NET SALE PRICE WITH FUTURES = $680/tonne physical + $70 futures gain = $750/tonne (= December FOB sunflower futures price in August)

As well as being able to protect against adverse price movements in the physical sunflower oil markets and buy/sell forward, the Black Sea Sunflower Oil futures contract come with the safety and security of being cleared hence removing counterparty risk.

Key features of the Black Sea Sunflower Oil futures include:

  • Effective price risk management for Black Sea sunflower oil cash markets
  • No physical delivery – cash -settled using Platts assessments
  • Physical booked can be hedged up to 12 months out
  • Price settlements provided by CME Group daily 12 months out
  • Numerous brokers provide access to the market
  • Clearing removes counterparty risk and widens number of counterparties

For more information and details on how to access the contract to trade, please see our Black Sea page.

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By: CME Group

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