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CME Group Contemplates Change To Trading Limits

Photo: clipart.com

Spencer, IA: (Mar. 17, 2014) – The CME Group says the daily limits on how far grain futures contract prices can move each day will be reset twice a year according to a new formula.

The variable price limits, which must be approved by the Commodity Futures Trading Commission, are scheduled to go into effect on May 1st.

The new variable price limit mechanism will allow higher limits when prices are high and lower limits when prices are low. It replaces the current fixed limits of 40 cents per day for corn and 70 cents per day in soybean contracts.

CME last changed limits on futures contracts in August 2011. Work began almost immediately on a new mechanism, according to CME officials. They said some customers felt the new limits were too restrictive in a booming market. Others felt there needed to a tool for when prices are low.

DTN analyst Rick Kment said that, when corn was trading in the $2/bushel range in 1993, a 12-cent limit allowed a 6% price swing. When corn moved to $4/bushel the 12 cent limit was just a 3% move. By the same token, today’s 40 cent trading limit would constitute a 10% move in prices with $4/bushel corn.

CME’s mechanism for figuring variable price limits aims to keep the market from swinging more than 7% in one day.

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