Expanded position limits for CBOT grains point to volatility
By Julie Ingwersen
CHICAGO, March 15 (Reuters) - Expanded speculative position limits for agricultural futures scheduled to go into effect on Monday could eventually add to market volatility as commodity funds are allowed to build larger bets on market direction, analysts said.
Futures exchange operator CME Group, parent of the Chicago Board of Trade, is expanding position limits in wheat, corn, soybeans and other commodities following a final rule published in January by the U.S. futures regulator, the Commodity Futures Trading Commission.
The change comes at a time when commodity funds hold large net long, or bought, positions in CBOT corn and soybean futures, typically a sign that funds expect prices to rise. Both markets have hit multi-year highs in recent months in response to tightening global grain supplies.
The new rules will roughly double the number of contracts that speculators can hold in "spot," or front-month, contracts while also raising the limits for positions held in all contract months combined.
"The expectation is that higher position limits will lead to higher volatility, with perhaps higher highs and lower lows in the months ahead," Arlan Suderman, chief commodities economist for StoneX, a brokerage, said in a note to clients.
With a $1.9 trillion U.S. stimulus on the way against a backdrop of loose monetary policy, some analysts expect inflation to pick up, a development that could steer investors toward commodities.
"I have been talking to people in this industry (that) I haven't talked to since 2010 and 2011, who are now coming back and seeing our space as attractive," said Dan Basse, president of Chicago-based AgResource Co.
"If you look at the price of equities relative to commodities, we are extremely undervalued," Basse said.
"Our markets are getting bigger. I think it will lead to more volatility, but maybe more importantly, the higher price level and the tightness of supply and stocks does that by its own right," Basse said.
(Reporting by Julie Ingwersen Editing by Sonya Hepinstall)
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