July 21, 2011

CME plans to raise daily price limits for corn

CME Group Inc. (CME), the world's largest futures exchange, is seeking to expand its daily price limits on Chicago Board of Trade corn contracts by 33% after grain markets surged and volatility increased.

The proposal calls for the daily trading limit to be increased to 40 cents a bushel from 30 cents, the CME said in a notice on its website. The company organized a meeting with corn industry officials in Chicago yesterday to discuss the plan. The exchange needs approval from the US Commodity Futures Trading Commission to raise daily limits.

"It's a done deal and will be approved by the CFTC, even though some commercial traders opposed the change at yesterday's event," Roy Huckabay, an executive vice president at the Linn Group in Chicago, said. "It was a contentious meeting."

The National Grain and Feed Association, which represents 1,050 member companies, said in a written comment to the CFTC on May 20 that a wider range for price changes and increased volatility may lead to higher costs as companies are required to post more capital to conduct normal price hedging.

"The trade will be forced to adjust having failed to convince CME to maintain status quo," Richard Feltes, a vice president of research at R.J. O'Brien & Associates in Chicago, said.

The Chicago Board of Trade originally submitted a proposal to the CFTC in April seeking to raise the daily price limit to 50 cents. In May, the CBOT trimmed the increase to 40 cents and extended the review period to August 8.

Corn futures are up 76% in the past year, trading at US$6.825 a bushel as in Chicago. The 60-day historical volatility has increased about 69% from a low in February and is at the highest level since September 2009.