For the  PDF version of the Ethanol FAQ view the attached file.

Background
Benefits
Contract Specifications
Trading Issues
Launch Details

Background - Back to Top

1. Why did the CBOT launch a Denatured Fuel Ethanol futures contract?
Significant growth in U.S. ethanol production has resulted in the need for an effective risk management mechanism. The Chicago Board of Trade consulted the ethanol industry and has delivered what ethanol producers and consumers want: a reliable hedging instrument for domestically produced ethanol. The contract provides a reliable tool for managing the price volatility that characterizes the ethanol market.

2. Who was involved in the development of the Ethanol contract?
The CBOT initiated an outreach program to a sample of market participants in the U.S. Ethanol Value Chain with the idea that they would be best able to design a contract that would best serve their needs. Market participants in the Ethanol contract include ethanol producers, ethanol marketers, oil companies, gasoline refiners, and independent gasoline retailers.

3. How does the contract fit into the CBOT's existing commodity product group?
The new Ethanol futures contract is a natural extension of the CBOT's grain futures and options complex. Because corn is the primary feedstock used in U.S. ethanol production, it is likely to increase trading opportunities within the Exchange's existing Corn futures contract, the benchmark for pricing in the corn industry.

4. How does the CBOT provide market liquidity in Ethanol futures?
The CBOT has identified market makers for its Ethanol futures contract. A market maker is obligated to provide tight bid-offer spreads for various quantities, which should result in efficient, deep markets for customers.

 

Benefits - Back to Top

5. What are the major benefits of the CBOT Ethanol contract?
There will be many potential benefits to trading the CBOT Ethanol contract, some that are unique to the Ethanol contract, others that are common to all CBOT products.

• Contract grade specifies (A.S.T.M.) Standard D4806 plus California standards
• CBOT domestic Ethanol futures contracts provide a truly effective risk management and price discovery tool for the ethanol marketplace
• Shipping certificate delivery instrument – adds flexibility to the delivery process
• Chicago default delivery – resulting in a Chicago price basis
• Premier financial integrity of the CBOT and Common Clearing Link
• Arbitrage opportunities – spread against CBOT Corn
• Liquidity – CBOT Ethanol is traded alongside the highly liquid CBOT Corn contract
• Global access to open auction and electronic platform – level playing field and customer choice
• More than 15 hours of trading – trade during hours convenient to you
• Competitive exchange fees
• CBOT brand – global recognition

 

Contract Specifications  - Back to Top

6. What is the CBOT Ethanol futures contract size?
29,000 gallons, which is equivalent to 1 railcar or 2 Corn contracts.

7. What is the barrel equivalent of a 29,000 gallon Ethanol futures contract?
29,000 gal ÷ 42 gpb = 690.5 barrels

8. What is the delivery grade specified in the CBOT Ethanol futures contract?
The contract grade for delivery is Renewable Denatured Fuel Ethanol as specified in the latest version of The American Society for Testing and Materials (A.S.T.M.) Standard D4806 for "Denatured Fuel Ethanol for Blending with Gasolines for Use as Automotive Spark-Ignition Engine Fuel." In addition, delivery grade ethanol shall meet all California specifications.

9. Does the CBOT Ethanol futures contract specify the ethanol must be produced from corn?
No. CBOT Rules and Regulations do NOT specify what feedstock is used to produce the ethanol or where it is produced. Only that it meet the defined delivery grade.

10. What is the CBOT Ethanol futures contract pricing unit?
Dollars and cents per gallon

11. What is the tick size (minimum price fluctuation)?
One tenth of a cent ($.001) per gallon or ($29 per contract)

12. What are the maximum daily price limits?
Fifteen cents per gallon or ($4,350 per contract)

13. What contract months will be available for trading?
All calendar months.

14. What are the position limits for the CBOT Ethanol futures contract?
200 contracts net in spot month; 1,000 contracts net in any month; 1,000 contracts net in all months combined.

15. Is the CBOT Ethanol futures contract physical delivery or cash-settled?
Physical delivery. The Chicago Board of Trade's Ethanol futures contract was designed to provide as much flexibility as possible throughout the delivery process. Although the contract does allow for delivery at any buyer's location, the CBOT anticipates that the bulk of physical ethanol delivery will take place in-store at the buyer's terminal in the Chicago area.

16. Where are the physical delivery locations?
Specifically, the Ethanol contract delivery specifications call for physical delivery by tank car, on track, at shipping origin with seller responsible for transporting product to buyer's destination. Once matched, the buyer and seller will have 48 hours to privately negotiate a freight rate. Should private negotiations fail, the seller shall deliver in-tank at the buyer's Chicago, IL Terminal.

17. What is the delivery instrument?
As with the CBOT's corn contract, the delivery instrument for the Ethanol contract is a shipping certificate which gives the buyer the right, but not the obligation to demand load-out of physical ethanol from the firm that issued the certificate.

18. What firms are regular for delivery?
In order to be regular for delivery, ethanol facilities must meet several financial and physical requirements. All firms approved as regular along with their load out capacity are listed in an appendix to the CBOT Rulebook. If you would like to know more about the requirements for becoming a regular delivery facility for the CBOT Ethanol contract, please contact the CBOT Registrar's Office at 312-435-3592.

 

Trading Issues - Back to Top

19. What are the normal trading hours for the CBOT Ethanol futures contract?
Open Auction: 9:30 a.m - 1:15 p.m. (Chicago time)
Electronic Platform (e-cbot^® ): 6:36 p.m. to 6:00 a.m. and 9:30 a.m. - 1:15 p.m. (Chicago time)

20. What are the ticker symbols for CBOT Ethanol futures?
Open auction – AC
Electronic – ZE

21. What are the exchange transaction fees for the CBOT Ethanol futures contract?
Please see fee schedule.

22. Are Exchange-for-Physical (EFP) transactions allowed in CBOT Ethanol futures?
Yes

23. Are Exchange-for-Risk (EFR) transactions allowed in CBOT Ethanol futures?
Yes

24. Who should be interested in trading the CBOT Ethanol contract?
The CBOT Ethanol contract should appeal to a variety of market participants including:

• Domestic and global hedgers – buyers and sellers who want to manage ethanol price risk such as ethanol producers, ethanol traders/marketers, gasoline traders/marketers, gasoline retail distributors/jobbers
• Commodity hedge funds – who want portfolio diversification
• CBOT members and market makers – providing market liquidity through their trading activities

25. What CBOT memberships are eligible to trade CBOT Ethanol futures?
The CBOT Ethanol futures contract is designated as a FULL member contract.

26. Where is the CBOT Ethanol futures contract pit located?
The CBOT Ethanol futures contract is traded in a section of the Corn futures pit.

27. Who do I contact if I want to begin trading CBOT Ethanol futures contracts?
Contact your commodity broker. If you are new to trading futures and don't have a broker, you may want to refer to the "Find a Broker" section under Education at www.cbot.com.

28. Will the CBOT launch options on Ethanol futures?
The CBOT did not launch Ethanol options at the same time as Ethanol futures. However, the CBOT will monitor the maturation of the Ethanol futures contract to determine the appropriate time for a possible launch of Ethanol options.

 

Launch Details - Back to Top

29. When did the CBOT launch the Ethanol futures contract?
The CBOT launched the CBOT Ethanol futures contract on the open auction platform on March 23, 2005.

30. When is the CBOT Ethanol futures contract available for trading on the electronic platform?
The CBOT Ethanol contract is available for trading on the electronic platform from 6:36 p.m. - 6:00 a.m. and 9:30 a.m. - 1:15 p.m. 

31. What CBOT Ethanol futures contract months are available for trading?
All calendar months.