CME Group has a long history of operating world-class agricultural derivatives markets, including global benchmark commodities such as the CBOT wheat, soybean and corn markets. CME Group also offers fertilizer futures and options contracts.ii It covers the major geographic pricing points for urea, including the US, Egypt, the Middle East and Brazil. Besides urea, contracts are also available for the di-ammonium phosphate (DAP), mono-ammonium phosphate (MAP) and urea ammonium nitrate (UAN) markets. However, there are two key differences between fertilizer and the flagship CBOT contracts:
First, CME Group fertilizer futures and options typically trade as block trades in larger contract sizes. While these products are available on the CME Globex electronic trading platform, most trades are executed through voice brokers who match bids and offers in the market. These privately negotiated trades are then submitted to the exchange for settlement.
Additionally, fertilizer futures contracts are cash settled, unlike the CBOT grain and oilseed markets which are physically delivered. Cash settled contracts are not physically tied to the underlying commodity. At contract expiration, the contract’s open position is settled by a cash payment (debit or credit) based on final settlement, not physical delivery of the commodity.
The final settlement price for CME Group Fertilizer contracts is based on prices reported by Price Reporting Agencies (PRAs). PRAs are companies that assess the fair value of a commodity and report that value to the public at large. The use of PRA assessments in physical and financial trading is common in energy and metals and is becoming increasingly important in agriculture. For CME Group Fertilizer contracts, the final settlement price is derived from daily or weekly assessments from two PRAs: Profercy and ICIS. The exchange collects both assessments and removes the highest and lowest values, regardless of source. The final settlement price for futures contracts is the arithmetic average of the remaining published values for the contract month. More information on how the final settlement price for CME Group Fertilizer contracts is determined can be found here.iii.
CME Group’s fertilizer market has experienced tremendous growth since its inception in late 2011, with a compound growth rate of 24% (2012-2023) in traded volumes. Total traded volumes across all products will average approximately 8,000 tonnes per day in 2023, with urea contracts accounting for approximately 80% of traded volumes. As mentioned above, urea is the largest fertilizer market in the world.
