scenario #2 Pellet spot price rises by 10% to € 146/tonne by the delivery date With the increase in pellet price to € 146/tonne, the producer sells the 50,000 tonnes of pellets for net sales proceeds of € 7,300,000. However, as the short futures position was entered at € 132/tonne, it has lost € 14/tonne ( € 146/tonne – € 132/tonne). With 50 contracts covering 50,000 tonnes, the total loss from the short futures position is € 700,000. In the end, the higher sales proceeds are offset by the loss in pellet futures, resulting in net proceeds of € 6,600,000, equivalent to selling 50,000 tonnes of pellets at € 132/tonne. The short hedge protects the producer in a falling market, but re-stricts profits in a rising market. However, it allows the producer to re-duce risk and make a modest profit, regardless of market fluctuations. pellet exchange The idea for APX-ENDEX’s pellet exchange arose three years ago. Veer says, “In 2008, we established a pricing panel and began pub-lishing wood spot pellet prices to increase price transparency. Our pricing panel currently has 145 members consisting of utilities, pellet producers, and traders, who all report to us on a weekly basis. We track prices of future contracts on a three month, three quarter, and three year basis and publish the prices on our website.” In 2010, APX-ENDEX and the Port of Rotterdam conducted a feasibility study that indicated a need for exchange-traded biomass products. They prepared a business plan, with some details to be worked out as of July 2011: • Finalize standard pellet quality specifications, in consultation industry buyers and pellet producers; • Define sustainability criteria; • Adopt a standard contract; • Choose a standard contract lot size (e.g., a standard coal futures contract on the New York Mercantile Exchange is 1,550 tons); • Present trading rules to the regulator for approval; and • Define exchange member accession procedures. APX-ENDEX has decided upon a two-phase approach to launch the exchange. Initially, trading will occur in two five-hour sessions per week. Contract terms will be for three months, three quar-ters, or three years. After each session, trading parties will be made known to each other and trades will be settled between them. Once the concept has proven successful, APX-ENDEX will begin pro-viding clearinghouse services and act as the counterparty to each futures contract. A pellet exchange should provide an excellent opportunity for participants to reduce risk by hedging, to improve liquidity, and to increase confidence that transaction prices reflect real market values. • Gordon Murray is executive director of the Wood Pellet Association of Canada (www.pellet.org) and can be reached at 250-837-8821 or [email protected]. Measure Moisture Content quickly & accurately Replaces oven testing! BM Series high performance features include auto self-calibration and auto temperature compensation to ensure excellent accuracy and repeatability. Built-in datalogger. Battery-powered for portability. To operate, simply pour the biomass test sample into the storage bin and get results instantly! Ideal for wood chips, pellets, elephant grass, bark, wood shavings, sawdust and more. And our other models Model BLO Continuous online measurement with linear analog outputs. Model BLL One meter (39") long probe measures deep piles of wood chips. Model MCT-HS For miscanthus, hay and straw bales. Model BP1 Precision meter for pellet-type material, including wood, straw, thistle, rape and elephant grass. Questions? Call us at 800-645-4330 or visit online at www.checkline.com BM2-KIT ELECTROMATIC Equipment Co., Inc. 600 Oakland Ave Cedarhurst, NY 11516 – USA TEL (800) 645-4330 (516) 295-4300 • FAX (516) 295-4399 • EMAIL [email protected] 30 Canadian BIOMASS July/August 2011
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