* CME sees drop-off in futures trade after bright start
* Traders puzzled by price levels versus Euronext
* Poor 2016 French crop weighs on Euronext's futures
* Next harvest cycle key test for the two rivals
* GRAPHIC-CME EU wheat futures: reut.rs/2hEz3zU
By Gus Trompiz and Valerie Parent
PARIS, Dec 16 After a brisk start, falling
volumes in CME Group's new EU wheat futures show the
size of the task in challenging Euronext's established
benchmark, making the next harvest key to gaining a foothold in
Europe, traders said.
The Chicago-based exchange impressed market players by
attracting liquidity soon after launching a long-planned EU
wheat contract in September, overcoming a first hurdle that has
stymied other new agricultural derivatives.
But daily volumes and open interest have since fallen, with
traders citing confusing price levels - including a brief price
spike on Oct. 26 blamed on a trading error - and CME's perceived
reliance on market-maker sponsors to generate activity.
With incumbent operator Euronext also seeing a drop in
activity in recent months after a very poor crop in France, the
EU's top wheat grower, the upcoming 2017 harvest cycle will be
an important test for each of the rival contracts.
"The CME launch was a success until October and then
liquidity fell as prices rose sharply and no longer reflected
market reality," one futures broker said.
"Attention is going to start turning to next year's harvest
so maybe that will lead grain handlers to have another look at
the CME contract."
Double-digit price premiums for CME versus Euronext
confounded expectations that its lower wheat-quality
specifications would lead to a discount against Euronext.
Forward positions covering the 2017 harvest show a reversal
of this situation, however, suggesting next season may provide a
clearer picture of market appetite for the competing contracts.
CME sees encouraging activity spanning commercial and
financial firms, Jeffry Kuijpers, executive director,
agricultural commodities, at the group, said, noting some
Exchange For Physical trades whereby parties exchange futures as
part of a physical commodity sale.
"As well as a healthy participation in the contract, the
recent deliveries of certificates against the December 2016
delivery month - 65 lots through three approved warehouses -,
validate the effectiveness of the contract," he said.
Its delivery model, using a network of inland silos and
offering tradeable storage certificates, has been at the heart
of CME's pitch to European traders, who have criticised
Euronext's reliance on a small number of port delivery silos.
Euronext, meanwhile, has seen its volumes weakened by the
worst French harvest in 30 years, which cut the amount of grain
needing to be hedged just as futures markets were struggling
with low volatility.
"You have to consider this year as totally atypical,"
Olivier Raevel, head of commodities at Euronext, said.
Average daily volume for Euronext wheat futures so far this
year was about 36,000 50-tonne lots, down 1 percent from last
year. This annual trend encompassed a strong start to 2016, a
post-harvest slump and a recovery since November, Raevel said.
CME's daily average to date is running at around 1,100 lots,
according to Kuijpers.
Euronext's extra liquidity is a compelling argument for now.
"The CME EU wheat has not turned out to be one of the
futures contracts which were launched and then die with no
trade," a German trader said.
"But I am not moving to it. The great attraction of Euronext
for me remains the excellent liquidity."
(Additional reporting by Michael Hogan in Hamburg, editing by