A new commodities exchange hopes to profit from E.U. agricultural reforms and the single currency

By STEVE ZWICK /COLOGNE

edieval documents filed 200 years before Gutenberg cranked out his first Bible attest to the longevity of a German farming clan called Bonekamp. By the year 1230, the family had already established themselves as respected pig farmers in the thriving village of Rurup in what is now Westmunsterland, near Hanover. Although Rurup these days exists as little more than the name of a neighborhood in the town of Dulmen, the Bonekamps are still doing what they've done for close to a millennium. Bernhard Bonekamp, 49, gets up every morning at 6:30, shares a breakfast of ham and eggs with his son Dirk, 22, and together they tend the family's hogs.

Still, times change. Thirty years ago, the family abandoned dairy farming after seven centuries in the business. A decade later, they began selling their hogs directly to slaughterhouses. And three years ago they began hedging the prices they got for their hogs with futures on the Amsterdam Commodity Exchange. More recently, around noon each day Bernhard began handing the tractor keys to his son and hopping into the family BMW to persuade other farmers they also should try the futures-based risk management tools to be offered by the Warenterminborse Hanover, or WTB, when the new exchange begins trading on April 17.

WTB was conceived by the German Farmers' Union and a group of creative financiers in 1992, shortly after the European Union announced it would begin reforms of the Common Agricultural Policy. Progressively lower price supports similar to those proposed in Brussels last week should lead to more market-driven prices for agricultural products, which will mean bigger price swings. Farmers will have to manage the resulting risks and that is what futures trading is all about. In addition, the advent of European Economic and Monetary Union will mean it will be easier to trade commodity futures across borders.

The French futures exchange Matif and the London exchange Liffe, both of which specialize in the sexier financial futures like currencies and stock indexes, took control of their regional commodity exchanges a decade ago in anticipation of these developments. The WTB, being an exchange for hard commodities only, has nothing to lose with EMU and hopes instead to gain a whole continent of potential users when the same monetary union that has disrupted the established exchanges suddenly means prices for all agriculture products are measured in a single currency.

Bonekamp and his colleagues had to fight six years of legal battles just to get started at all. Says Bonekamp, "The whole concept of risk management is new here. Farmers in Germany haven't used futures before." Actually, they have. A previous exchange got off the ground in the 1890s and was promptly blamed for the market crash a couple years later. The resulting 1896 ban on agricultural futures trading wasn't lifted until 1994. A similar ban held for financial futures until the people behind the Frankfurt-based Deutscheterminborse (DTB) got it lifted in 1991.

Now Bonekamp and brother Konrad are blitzing the countryside in search of customers for their newly-formed brokerage, which targets farmers and other potential users. If the little exchange is to succeed, it will be by luring those who most need to protect themselves from price swings: farmers and, to a lesser extent, slaughterhouses. This will involve a lot of waiting and educating, says University of Kiel agronomics professor Ulrich Koester. "There is a need, and farmers are aware of it," he said, "but I just watched a guy from the biggest grain trading company in my region stand up and say the only people who use futures were speculators."

Certainly the potential is there. Paul Knapp, CEO of the Chicago-based think tank Catalyst Institute, notes that the European and American agricultural markets are about the same size economically, but futures trading in the U.S. dwarfs that in Europe. For example, in 1995 daily rapeseed volume in Paris averaged 206 contracts a day, or slightly more than 10,000 tons. It has since grown to 300 contracts, or 15,000 tons, but compare that to the 2 billion tons of soybean meal changing hands daily at the Chicago Board of Trade. Says Knapp: "The only question is where it's going to take place."

EMU will lead to a shakeout of the Continent's more than 30 existing futures exchanges. Almost all of them deal exclusively in financial futures, and a single currency will mean an end to the need to hedge currency risk within Europe. Monetary union will mean just one exchange can win in each agricultural commodity market. "Right now, the only reason to have the same kind of wheat trading in both Paris and Hanover is francs and deutsche marks," Koester says. "You throw in the euro, and only one contract can survive." EMU could help the new exchange in less obvious ways. Says Knapp, "The psychological impact of something as sweeping as EMU may do more to stimulate people into using risk management than will the concrete impact brought on by a single currency."

The WTB may have the advantage of surprise. The other prominent exchanges have been consumed with the impact of EMU on financial futures because the currencies they trade will cease to exist. Matif and Liffe are unlikely to view agricultural futures as the key to their success. Still, the stakes are high, and neither Matif nor Liffe have gotten where they are by missing opportunities. The WTB now sits where the DTB sat seven years ago: a young exchange facing off against long-established rivals. On the plus side, the new commodity exchange has Europe's largest hog market at its door. To its detriment, the exchange lacks experience and credibility. But sometimes, as DTB chairman Jorg Franke once said, "It's good to be underestimated." That was in 1991. It has since grown into one of the world's largest, now rivaling even the once dominant Chicago exchanges. Bernhard Bonekamp's ambitions aren't that grand. He would be happy to see the WTB play a role in ensuring the financial viability of German hog farms like his. Then, who knows? The Bonekamp spread might last another 750 years.