Sign Up to our mailing list

The Voice of Canada’s growing pellet sector
  • Video: Heating with Wood Pellets

    Heating with wood pellets is an effective way to help in the fight against climate change.

  • Video: Wood Pellet Association of Canada

    Existing coal plants can be cost-effectively repurposed to use wood pellet fuel to help the environment and reduce air pollution.

  • Pellets

    Made from renewable forest byproducts and unmerchantable material, wood pellets from Canada provide a renewable, sustainable fuel source for generations to enjoy. | Read More

  • Sustainable

    Only 9% of the world’s forest are certified. Over 42% of them are in Canada, making it an ideal source for sustainable wood pellets. | Read More

  • Renewable

    WPAC members rely on sawmill waste and forest harvest residuals for the bulk of their fibre supply, allowing 100% resource use. | Read More

  • Fossil Fuel Alternative

    Whether on their own or co-fired with coal, wood pellets provide a lower carbon footprint and renewable energy source. | Read More

  • Innovative

    WPAC continues to support R&D in key wood pellet areas like safety, efficiency, fuel stability, energy content and more. | Read More

In May, WPAC president Robert Tarcon and I visited the London offices of CME Group to learn about their new central clearing service for over-the-counter (OTC) wood pellet swaps. CME Group is the world’s largest operator of financial derivatives exchanges, which include the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange.

CME Group has now entered the world of wood pellets. We met with CME representatives Richard Stevens, Louise Croucher and Lisa Kallal. Brodie Govan of Argus Media also attended.

CME Group is now offering central clearing for OTC wood pellet swaps through its subsidiary CME Clearing Europe (CMECE). A swap is a financial derivative in which two parties trade cash flows with one another, but not the actual physical underlying commodity. This is different from what occurs on the APX-ENDEX wood pellet futures exchange where physical product ultimately changes hands.

A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions. These transactions may be executed on a futures exchange or securities exchange, as well as off-exchange in the OTC market as in the case of CMECE’s clearing of wood pellet swaps.

A party who wishes to trade uses the services of a broker who is a member of the clearing house. The clearing house stands between two brokers and its purpose is to reduce the risk of one (or more) broker failing to honour its trade settlement obligations. A clearing house reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring margin deposits, by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the broker-members, and by providing a guarantee fund that can be used to cover losses that exceed a defaulting broker’s collateral on deposit.

Once a trade has been executed by two counterparties, the trade can be handed over to a clearing house, which then steps between the two original traders’ brokers and assumes the legal counterparty risk for the trade. As the clearing houses concentrates the risk of settlement failures into itself and is able to isolate the effects of a failure of a market participant, it also needs to be properly managed and well capitalized in order to ensure its survival in the event of a significant adverse event, such as a large clearing firm defaulting or a market crash.


So what is a swap? A swap refers to an agreement between two parties to exchange a series of payments on predetermined terms. A commodity swap refers to an agreement between two parties under which the cash flows that need to be exchanged are dependent on the price of the underlying commodity. The underlying commodity can be anything from coal, oil or natural gas to agriculture products, metals, and – in this case – wood pellets. Commodity swaps can be used by a commodity buyer (i.e., a power utility) in order to hedge against the rising prices of commodities, so, for example, if a power utility needs to purchase wood pellets but is concerned about rising wood pellet prices, it can opt for a commodity swap where it agrees to receive payments linked to a pellet price index and pays a fixed rate to the other party in exchange.

Commodity swaps can also be used by the producer of a commodity (i.e., a pellet producer). If a producer is concerned about being protected from falling prices, then the producer can go execute a commodity swap where the producer will agree to pay the market price to a financial institution in return for receiving fixed payments for the commodity.

Wood pellet markets are continuing to grow rapidly. Price volatility is expected to increase. Wood pellet swaps may prove to be a useful tool for both producers and consumers to reduce price risk. Certainly CME Group’s new clearing service will be essential for such OTC swaps to take place in a stable low-risk trading environment.

Originally published in Canadian Biomass - All rights reserved. Gordon Murray is executive director of the Wood Pellet Association of Canada. He encourages all those who want to support and benefit from the growth of the Canadian wood pellet industry to join. Gordon welcomes all comments and can be contacted by telephone at 250-837-8821 or by e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Industry Links

Industry Links



Become a Member

Become a Member


WPAC Safety Committee

To find more information about the WPAC Safety Committee and safety resources, please click here

Power Generation


Sustainable power

The vast majority of Canadian wood pellets are made from sawmill residuals - sawdust. The rest are made from the residuals from harvesting operations for sawmills and pulp mills, or low-grade timber from forest industry harvest sites that has no other economic value. Think firewood. Read more...

Breathing easier - pellet emissions vs coal

Sustainability should be top of mind for any company that wants to stay in the game in today’s world.

As important a role as Greenhouse Gas (GHG) emissions play, we also need to focus on noxious emissions versus coal.


Industry News


  • Drax, GB Railfrieght, extend contract to transport biomass

    GB Railfreight (GBRf) and Drax have agreed to extend their contract to transport supplies of sustainable biomass from UK ports to Drax Power Station in North Yorkshire until 2025. Teams at GBRf have worked closely with Drax for the past[…]

  • Remotely powerful: Nine rural communities’ experience with bioenergy – Part 3

    Remotely powerful: Nine rural communities’ experience with bioenergy – Part 3 [Editor’s note: this article is the third in a series of four. Part 4 online next week.] In early 2020, CanmetENERGY, part of Natural Resources Canada, carried out interviews with nine pioneering rural and remote communities that have installed bioenergy[…]


The Pellet Advantage

Efficient and Plentiful Production

Wood Pellet Association of Canada members are world leaders in the design and operation of modern pellet plants.


Innovating our way to a safer, better product

Wood pellets are a safe, reliable modern fuel. But they are still a fuel, requiring care in producing, shipping and storing.


Renewable and sustainable? Energy really can grow on trees.

There is no single energy source capable of solving our dependence on fossil fuels. Instead we need to look to a mix of new fuels, including wood pellets.


Argus Wood Pellet Index

US$ per metric tonneArgus Wood Pellet Index

We are using cookies to give you the best experience on our website. By continuing to use the site, you agree to the use of cookies. To find out more, read our Privacy Policy.