The National Corn Growers Association (NCGA) recently sent a letter to the Commodity Futures Trading Commission stating the organization's opposition to a proposed rule change that would increase daily price limits on Corn Futures and Options CBOT Rule 10102.D. A petition filed by the CME Group requests approval to increase the daily cap on corn futures and options trading from 30¢/bu. to 40¢/bu. NCGA believes that this will not aid price discovery and that, ultimately, growers will bear the cost.
"We recognize the valuable role non-commercial traders and speculators play in the futures market, but we also recognize that daily price limits serve as a check against irrational price runs," NCGA President Bart Schott says. "This increase will needlessly increase market volatility and this added risk will, ultimately, be passed along to farmers."
Schott also pointed out that, while the CME Group cites the number of contracts that settled at their daily limit in the proposal, CME failed to show that trading was halted due to limits on back-to-back days.
"For growers, this issue is not a theoretical debate about price discovery, but a real dollar and cents concern. Under the proposed increase, grain elevators will face higher trading margins and more margin calls," says Schott. "As a consequence, elevators may be forced to take actions that negatively impacted growers such as spreading the basis, adding new fees and curtailing bids for future grain contracts."
NCGA urges growers and their allies to voice their opposition to this proposed rule change. Register a comment with the CFTC before the period closes on Friday, May 20.
For the full text of NCGA's comment, download the pdf.
You can also read the full proposal as submitted by the CME Group.