Linder Farm Network

MGEX has a suite of five financially settled Agricultural Index products, each with futures and options listed and available for trade. These indexes, or averages, represent national cash spot prices for corn, beans and each of the three major wheat varieties grown in the United States. Specifically, the indexes are the National Corn Index (NCI), National Soybean Index (NSI), Hard Red Spring Wheat Index (HRSI), Hard Red Spring Wheat Index (HRWI) and the Soft Red Winter Wheat Index (SRWI). Most recently, the Soft Red Winter Wheat Index (SRWI) has garnered commercial interest resulting in active quoting, trades and open interest. Each index has a spot value calculated daily by DTN and can be viewed on our homepage at www.MGEX.com.

The SRWI spot price, for example, represents the arithmetic average of the majority of elevator bids for #2 Soft Red Winter Wheat for that day. As such, this provides a comparative measure of your local SRW cash price against the national average cash price. The monthly SRWI futures contracts financially settle to the simple average of the last three SRWI spot index values of the month, like a final mark-to-market. This methodology provides guaranteed convergence to this national cash average.

Now let’s take a look at a comparison of St. Louis, Missouri’s cash point versus CBOT wheat and the SRWI.

As the graph shows, the SRWI basis is overall less volatile and has a smaller range of basis change. Basis stability is desired by hedgers who wish to minimize their risk. Consequently, there should be a higher probability of a more predictable hedging outcome whether indexes are used for price risk management or exploring speculative possibilities.

For more information on the SRWI or any of our risk management products contact us at marketing@mgex.com or contact Joe Albrecht at jalbrecht@mgex.com or
612-321-7151.