High Fructose Corn Syrup Futures Trading A Flop At Grain Exchange
MINNEAPOLIS (AP) _ Even though the trading board for high fructose corn syrup futures at the Minneapolis Grain Exchange has been without a regular pulse for nearly two years, the originator refuses to declare it dead.
″Occasionally there is a seller and occasionally there is a buyer but it seems that never the two can meet,″ said Richard Rhodie, who led the exchange’s effort to become the world’s only licensed hub for the trading of high fructose corn syrup futures contracts.
After a sweet debut in the spring of 1987, the giant millers and prolific soda pop bottlers who were expected to feed off the market departed with a sour taste. To their dismay they discovered in July of that year that shipping routes for the sugar substitute included stops not authorized by quality control experts at Pepsi and Coca-Cola bottlers, Rhodie said.
Handling the raw material had not been contemplated by many of the traders, but a group of sellers suddenly exercised their right to make deliveries, Rhodie said. One contract buys 48,000 pounds of the corn syrup, the equivalent of a tank truck.
A sudden liquidation of contracts occurred and trading slammed to a halt. The shipping snafu has been corrected, Rhodie said, but trading never recovered. Months go by without a trade, leaving players with no assurances that they can buy and sell as they need.
″The fact is obvious that it isn’t trading well,″ said James Lindau, president of the exchange. ″It’s safe to say that it hasn’t made any money for the grain exchange.″
Rhodie thought he had a natural when he picked high fructose corn syrup as a diversification tool for the commodity exchange. The industry includes big suppliers like A.E. Staley, Archer Daniels Midland and Cargill Inc. who are used to futures markets. And there is a booming demand for the product.
An estimated 14 billion pounds of the material is consumed every year as an ingredient in soda pop, and baked goods, Rhodie said. It has a consistency and taste that make it an increasingly attractive substitute for granular sugar, Rhodie said.
More important, its price is low, ranging from eight or nine cents a pound up to 26 cents a pound.
Rhodie said he envisioned more than 100 contracts a day changing hands. Bottlers, he thought, would be driven to ″lock in″ the cost of their most expensive ingredient to ensure profitability in long-range marketing plans.
For instance, a bottler could buy a contract to set the cost at 17 cents a pound for syrup needed three months later.
If the price drops below 17 cents a pound in three months, the bottler still makes a profit on the sale of the pop. If the price increases, the bottler makes an additional gain on the sale of the futures contract.
″The market is there if they want to use it,″ he said. ″Right now they’re just living within the traditional constraints of their business. They pay cash for the product. If they guess right, they’re lucky.″
The highest volume ever recorded on the exchange was 286 contracts on May 20, 1987, Rhodie said. But volume was dismal in the second half of 1987 and 1988 was miserable. Rhodie could name only a few dates in 1988 when more than 10 contracts traded hands, and activity this year has been nil.
″It’s unfortunate but, you know, you do your best and you hope it works,″ Rhodie said. ″I guess I can’t take it personally.″
Lindau said there has been no talk of discontinuing the futures market. Like Rhodie, Lindau said another drought or other significant event could jar a response from the industry.
″There is still scattered interest,″ Rhodie said. ″But everybody’s still on the sidelines and saying, ’I’ll trade it if you trade it.‴