February 28, 2020
CME increases hog futures trade limits due to African swine fever
The Chicago Mercantile Exchange (CME) Group said it will increase its lean hog futures April daily trading limit and make annual adjustments because of China's African swine fever (ASF) outbreak heightening volatility, reported Reuters.
Futures prices have swung greatly due to rising demand for US pork by China, fuelled by the ASF outbreak. In addition, China's timing and size of sales are unknown after the country pledged to purchase more US agricultural goods as part of the US-China Phase 1 trade deal.
The ASF outbreak in China has reordered global meat trading and pushed pork producers in the United States to remove ractopamine (growth drug banned in China) from their supply chains to boost exports to China.
CME Group said the spread of ASF and the trade war between the US and China have resulted in high volatility levels. ASF has spread further throughout Southeast Asia and east Europe.
CME Group will increase the daily limit to 3.75 cents per pound from April 13, compared to 3 cents prior. It will be pushed higher to 5.5 cents if at the initial limit, any of the front eight contract months settle. Before the move, limits will expand to 4.5 cents temporarily if at the initial limit, any of the front three contract months settle.
In addition, CME Group said the limits will be reset on an annual basis based on previous daily settlement prices on first trading day in September. This will stay until final trading day in August the coming year.
Based on CME Group data, last year saw hog futures hit its daily price limit 14% of the time, or 31 times total. As of February 7 2020, the market hit its daily limit four times.
When many settlements hit the daily price limit, it restricts price discovery and stops traders from executing orders.
The new changes will take effect once the US Commodity Futures Trading Commission gives its approval.