The Good Tech Companies - How CME's Product Team Cleared the Black Sea Grain Trade

Episode Date: October 8, 2026

This story was originally published on HackerNoon at: https://hackernoon.com/how-cmes-product-team-cleared-the-black-sea-grain-trade. Learn how CME designed Black Sea grain futures, why the benchmark failed after Russia's invasion of Ukraine, and how the exchange rebuilt it. Check more stories related to undefined at: https://hackernoon.com/c/undefined. You can also check exclusive content about #commodity-market-design, #commodity-benchmark-risk, #black-sea-grain-futures, #cash-settled-futures, #grain-price-hedging, #cvb-futures, #cme-black-sea-wheat-futures, #good-company, and more. This story was written by: @francoismegret. Learn more about this writer by checking @francoismegret's about page, and for more stories, please visit hackernoon.com.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. How CME's product team cleared the black sea grain trade by Francois Megrid. Before December 2017, the world's fastest growing grain export region hedged bilaterally are not at all. The contracts that change that deserve more credit than they get, including for what happened when the market underneath them disappeared. By Francois Megra product design at an exchange is mostly invisible work. When it succeeds, a market that you, used to run on bilateral trust starts running on margin in a clearinghouse, and within a few years

nobody remembers it was ever done any other way. The Black Sea Grain Contracts CME Group launched at the end of 2017 are one of the better examples of that work in agricultural markets over the past decade, and the full arc of what happened to them is instructive. What the market looked like before, by the middle of the last decade the Black Sea had become one of the largest grain export regions in the world, and it had almost no cleared price risk management. Exporters and trading houses managed exposure through bilateral forwards and over-the-counter swaps negotiated directly with each other, which meant carrying full counterparty credit risk on every position, no margin, no netting, and no anonymity. If your counterparty failed, that was your problem, Alone.

The alternative was to hedge with Chicago wheat futures, which were liquid and cleared but tracked the American crop. The basis between Chicago and an actual Black Sea cargo moved a great deal, and when it moved against you, the hedge stopped hedging and became a second position you had not asked for. So the region had two options, both bad, bear the credit risk, or hedge something adjacent to your actual exposure and hope the relationship held. The design decision that made it work, on the 18th of December 2017, CME group listed Black Sea Wheat Fob, Platts, and Black Seekornfob, Platts, Futures. 50 tons per contract, financially settled, wheat referencing the Platts Russian Wheat 12. 5% Fob Black Sea Deep Water Assessment and Corn referencing the Platts-Ukrainian Corn Fob Black Sea Assessment.

CME Group's agricultural products team framed the rationale at launch in straightforward terms that the Black Sea had become a major player in global wheat and corn trade and customers needed a way to manage price exposure at OID and the contracts were developed alongside Plats on the underlying assessments. The important choice there is cash settlement against an independent price reporting agency rather than physical delivery. Physical delivery contracts require delivery points, grading, storage, inspection in an enormous amount of contractual machinery, and in a region with the logistics and political complexity of the Black Sea that machinery would have been close to impossible to build and defend. Cash settling against a published assessment sidestepedal

of it. The exchange did not need to take delivery of anything. It needed a number that participants agreed described the market and a clearing house standing between them. That is a deceptive. a conceptively large piece of engineering. It converts a credit relationship into a margin relationship. Counterparty risk stops being bilateral and becomes mutualized through the clearinghouse. Positions net, smaller participants who could never have obtained bilateral credit lines with the major houses can suddenly take the other side of a trade, because the clearinghouse is the counterparty to everyone. It worked, and the numbers were not marginal. Adoption of the wheat contract was fast by the standards of new agricultural products. On CME's own published figures,

roughly 465,000 lots traded between the December 2017 launch and June 2020, equivalent to about 23. 2 million tons of wheat. In the first half of 2020 alone, 113,000 lots traded, a 78% increase on the same period a year earlier, running at around 1,000 lots per day across futures and options, or roughly 50,000 tons a day. Open interest passed 24,875 lots by the end of May 2020, up about 4, 4,000. 40% year on year. The corn contract grew more slowly but in the same direction. Total 2020 volume reached about 40,000 lots, equivalent to 2 million tons and a 25% increase on 2019, with open interest of 4,387 lots at the end of that December, up 32%. CME put that year's volume at roughly 7% of total Ukrainian production for the 2020-21 marketing year, which is a serious share for a contract

three years old. The user base was the right one, which matters more than the volume. CME describes participation spanning producers, exporters, trading houses and processors across Europe, the United States, the Middle East and Asia. Those are hedgers with genuine physical exposure rather than speculators cycling paper between themselves, and hedger participation is the thing that tells you a contract is doing its job. Traders sourcing from multiple origins began running Black Sea against Chicago as a spread, which is the clearest possible signal that the market had accepted the contract as a true representation of regional value. Then the thing being measured stopped being measurable. None of what followed was a design failure. Russia's invasion of Ukraine, the sanctions regime that followed,

and the collapse of predictable export flows DID something no contract structure can absorb. They made the underlying assessment unreliable. A cash-settled future is only as sound as the price it settles against, and a price reporting agency can only assess what it can observe. When the observable trade fractures, the assessment fractures with it, and everything built on top has to come down. CBOT suspended its black sea futures and options in August 2023. It is worth being precise about the failure mode, because it is frequently misdiagnosed. The contracts did not fail because they were poorly specified, illiquid or badly marketed. They had already proved themselves on all three counts. They failed because the market they described ceased to exist in anaccessible

form. That is a risk every cash-settled benchmark carries and almost nobody prices. The alternative they built, the more interesting part of the story is what CME did next, because the obvious response would have been to leave the region alone. Instead, the exchange came back with a narrower and more defensible product. On 2 June 2025, CBOT listed Black Sea Wheat CVB, Argus, Futures, cash settled against an argus assessment of 12 5% protein wheat fob from constanza varna and burghis Romania and Bulgaria rather than the whole region that is a deliberate contraction of scope and it is the right one those flows remained observable land assessable throughout so the assessment underneath the contract can actually be produced around

160 000 tons traded in the first month more usefully argus daily CVB prices have tracked Fob Novorosysk at a correlation near zero. 97, which suggests the contract can serve as a hedge for exposure well beyond the three ports it names, though how far each desk is willing to rely on that is its own judgment. The design lesson is the one that generalizes. When the specification you built can no longer be assessed, the answer is not to defend it. It is to redraw IT around whatever part of the market remains observable, and to accept a smaller and more honest scope in exchange for a number you can actually defend. Plats made the same call in oil when North Sea production thinned out,

folding USWTI Midland crude into dated Brent from the June 2023 contract month and completing the inclusion that may. So the world's most quoted oil benchmark now takes part of its price from cargoes leaving Texas. Both cases point the same way. The exchange's product is not really the contract. It is the ongoing claim that a number describes a market, and that claim has to be re-earned every year against whatever reality is willing to be measured. The teams that build these things well are the ones who understand that they are shipping a maintained assertion rather than a finished instrument. Francois Megrid has worked in commodity and energy markets for around 15 years, including commodity strategy roles at Arcelor Middle and Schneider Electric, desk building responsibilities

at interdealer broker tradition, and latterly as executive director and head of carbon and gas trading at First Abu Dhabi Bank. He writes on market structure, benchmarking and the energy transition. Volume, open interest and adoption figures cited above are drawn from CME Group's own published market reports. Thank you for listening to this Hackernoon story, read by artificial intelligence. Visit hackernoon.com to read, write, learn and publish.