CME Extends Review Period on Corn Price Limit

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CME Group Inc. has extended the review period for its proposal to increase the daily price limit on Chicago Board of Trade corn futures and options amid continued opposition to the proposal from corn end users and producers.

The exchange is seeking to raise the daily limit for corn futures at the Chicago Board of Trade to 40¢ from 30¢. It needs approval from the U.S. Commodity Futures Trading Commission (CFTC).

The CFTC on Monday said it had approved a request from CME Inc. that it extend the review period for the proposal by 45 days from Friday, which was the original deadline.

"During the extended review period, which will begin on June 24 and continue through August 8, CME Group plans to hold an industry meeting to explain the rationale for the proposal and its relationship to volatility and the procedure used by CME Clearing to set margin levels for corn and other grains," the exchange said in a special report.

CME Inc. originally sought to raise the corn futures daily price limit to 50¢, but scaled back its proposal in May after the CFTC received only negative comments on the initial proposal from a variety of corn industry sources including farm co-ops, grain merchandisers, farm lenders and end users, including major corn processors.

Comments have continued to run overwhelmingly against the scaled-back proposal with respondents citing concerns that wider price limits will increase market volatility and expose hedgers to bigger margin calls if prices surge.

In a letter opposing CME Inc’s current plan, the National Grain and Feed Association also pointed out increasing the daily price limits on corn futures to 40¢ could create a situation where commercial grain firms would be forced to cut back on offerings of cash forward contracts to producers.

Such a situation arose in 2008 when many grain merchandisers stopped buying corn more than 30-60 days out because they were financially stressed by large margin call on futures hedges.

CME Inc. last widened the limit for CBOT corn futures in March of 2008 with an increase to 30¢ from 20¢. Nearby corn futures at the time were trading around $5.50/bu. and ended up climbing to a record high of $7.65 in June of that year.

That price record was broken earlier this month, with the nearby July corn contract reaching a new, all-time high of $7.99 3/4/bu. The nearby contract traded Monday around $7.

 

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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