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CME raises corn limits

08/09/2011 @ 11:18am

The CME Group today announced it has received CFTC approval of its proposal to increase daily price limits for corn futures and options. As a result, effective trade date Monday, August 22, 2011, daily price limits for CBOT Corn futures, Corn options, and Mini-sized Corn futures  will increase to $0.40 per bushel from the current $0.30 per bushel, according to a CME Group press release. These contracts are listed with, and subject to, the rules and regulations of the CBOT.

“In recent months, historically low levels of supply coupled with growing demand for corn and other macroeconomic factors have resulted in significantly increased corn futures prices and volatility,” said David Lehman, Managing Director, Commodity Research and Product Development, CME Group. “After significant discussion with customers, representative trade groups and the CFTC, we believe increasing daily price limits will result in less-frequent limit moves and will help ensure that our markets provide the most effective means for price discovery and risk management markets.” 

The current price limit is $0.30 per bushel per day for Corn futures and option contracts, expandable to $0.45 and then to $0.70 when at least two contracts close at limit bid or limit offer on the previous trading day. This represents approximately only 4.4 percent of the current nearby futures price, which is historically low. As a result, during 2011-to-date alone, 70 contract months have settled at or beyond the initial price limit, compared to 36 contract months in all of 2010.

During a July 19 corn industry meeting, CME Group invited market participants to comment on its proposal and presented analysis on a number of factors surrounding corn price volatility, the need to increase daily price limits and factors used by CME Clearing to establish margins. At the same time, the exchange committed to continue to research and discuss with market participants alternative price limit mechanisms, including specifying price limits as a percentage of futures prices.

Beginning August 22, the initial price limit will increase to $0.40 per bushel per day expandable to $0.60 per bushel when at least two contracts close at limit bid or limit offer on the previous trading day.

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