EXCHANGE HOPES TO END POTATO FUTURES FAMINE

EXCHANGE HOPES TO END POTATO FUTURES FAMINE

Sixteen years after a scandal closed trading, potato futures could be revived this year, but on a different exchange.

The New York Cotton Exchange will ask the Commodity Futures Trading

Commission this week to let the exchange start trading a U.S. russet potato futures contract in New York and Dublin by the end of 1995, said Anthony George Gero, first vice president, Prudential Securities Inc. and a member of Cotton Exchange's potato committee.Cotton officials see a need for reopening public potato trading because ''demand here and abroad is booming," said Tim Barry, the Cotton Exchange's staff economist. The Cotton Exchange can "offer contracts in

dollars and local European currencies through Finex Europe, our financial and foreign exchange futures subsidiary."

Powered by the popularity abroad of McDonald's and other fast-food chains featuring french fries, U.S. potato exports have gained a foothold in European markets over the past five years. The USDA's Economic Research Service puts potato product exports at more than 1.5 billion pounds in 1994, compared with less than 1 billion pounds in 1989.

If the potato contract is approved, the Cotton Exchange and Finex Europe, based in Dublin, will execute orders for potato futures coming in from Europe and the United States.

The new potato contract is based on delivery of 85,000 pounds, or two carloads of U.S. #1 russet potatoes, in 10-pound mesh bags in approved exchange facilities in Maine, Idaho, Washington, Red River Valley (North Dakota-Minnesota), Colorado, California, Oregon and Wisconsin.

Trading hours will be from 9:45 a.m. to 2 p.m., Eastern time. Delivery months will be November, January, March, May, July and September. Prices will be quoted in cents per hundred-pound bags and daily permissible trading limits will be $1 a hundred pounds (100 points). Dublin will have a similar amount of trading hours but will begin six hours earlier than New York.

Futures are used by growers and processors to reduce the risk of price changes through a process known as hedging while speculators provide liquidity to the market by offsetting that risk for the chance to make a profit.

With this new contract, Cotton officials hope to avoid problems with delivery that led to the demise of the contract then traded on the New York Mercantile Exchange in 1979. The difficulty began in 1976, when Nymex became the first American exchange to default on its guarantee to provide a safe marketplace for trading. The contract eventually died of neglect in 1979.

Many experts criticized Nymex for failing to broaden the Maine contract to include potatoes from other parts of the United States, after Boise, Idaho, processor, J.R. Simplot abrogated his contractual responsibility to delivery 1,200 carloads of Maine potatoes to customers holding futures contracts. Cotton's multiple delivery points should help avoid another default, exchange officials said.

Today, U.S. potato processors are receiving strong inquiries from supermarkets and fast-food chains for potato products while exporters are filling more orders from food concerns overseas, according to U.S. Department of Agriculture's Economic Research Service.

Domestic use, too, is growing. USDA figures show supermarkets and fast food operators have seen inventories reduced sharply this year, indicating higher consumer demand. As of July 31, potato product inventories were around 233.1 million pounds, about 17 million pounds less than in the same period a year ago.

U.S. potato production of 460 billion pounds is projected for 1995, about the same as last year, USDA said. However, a drought in the Northeast and Europe could hurt both crops.

"Because drought this year has sharply reduced Europe's potato yields, we expect demand for U.S. potatoes to exceed 1994's total," said Gary Lucier, fruit and vegetable analyst at the USDA's Economic Research Service.

In August, European food processors found themselves facing premium prices for potatoes, but it was too late to buy protection on local futures exchanges. Supplies were scarce and prices had risen out of sight - some 50 percent more than the previous growing period.