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Even more volatility ahead

Agriculture.com Staff 03/27/2008 @ 1:24pm

The CME Group will be increasing price limits for corn, soybean and soybean oil futures effective with the electronic night session tonight (Thursday, March 27th). Limits will be 30 cents for corn, 70 cents for soybeans and 2.5 cents for soy oil.

These expansions are based on the same logic as the recent increase in wheat price limits. Higher prices and more days with prices stuck at the limits motivated the increase.

As with wheat, price limits will now increase the day after prices close up the limit. The expansions will be 50 percent. For example, in corn, if prices are up the 30 cent limit one day, then the next day’s limit will be 45 cents. Price limits can expand another 50 percent one more time, if necessary, to 67.5 cents. This 50 percent formula applies to all CBOT ag futures, whether or not the price limits were adjusted.

Margin requirements also increased proportionately due to these changes. Larger price limits mean more risk, which means more margin money.

On A Different Topic….

High prices are having a "free trade" effect on many countries. To reduce the cost of some food products, governments are reducing or eliminating tariffs on imports. This reduces the total cost of the product. India has reduced tariffs on cooking oils and South Korea said it will lift import tariffs on dozens of grains and other raw materials. Previously, China had reduced tariffs on soybeans and oils.

These governments are seeking to lessen the inflation of basic food items and keep people happy. Remember there are many countries where economic turmoil can turn into political turmoil. Governments have more control over the economy than in the US and will freeze prices, subsidize food staples or take other measures in an attempt to control food inflation.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The CME Group will be increasing price limits for corn, soybean and soybean oil futures effective with the electronic night session tonight (Thursday, March 27th). Limits will be 30 cents for corn, 70 cents for soybeans and 2.5 cents for soy oil.

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