Chicago Board of Trade floor trading could open 10 minutes before USDA issues major crop reports, pending certification from the Commodity Futures Trading Commission.
CBOT owner CME Group announced that if CFTC approves, it will open grain and oilseed futures and options trading at 7:20 a.m. CST on days when USDA issues major crop reports at 7:30 a.m. CST.
However, USDA also reportedly is considering moving its release time for the major reports to mid-morning.
The CME Group's plan to open floor trading early on report days follows the expansion of electronic trading. Beginning May 20, CBOT grain and oilseed futures and options trading hours on Globex expanded from the previous 17 hours per day to 21 hours, from 5 p.m. to 2 p.m., CST, Sunday to Friday.
CME Group plans to open the trading floor early on mornings when USDA issues its reports on World Agricultural Supply and Demand Estimates, Crop Production, Prospective Plantings, and Acreage. Next month, the early openings would be on June 12 and June 29.
The early openings would apply to CBOT corn, soybeans, wheat, soybean meal, soybean oil, oats, and rough rice futures and options.
Opening would stay at 9:30 a.m. on other mornings, and floor trading would continue to close at 1:15 p.m. CST Monday through Friday.
CME spokesman Damon Leavell noted that the change in floor trading hours followed the extension in Globex electronic trading hours. "We spoke to the floor community and they said they wanted to extend hours to be open during the key reports that come out," he said.
"Globex is not particularly liquid," said Matt Roberts, an Ohio State University economist and former broker. The electronic market would have difficulty coping with volatility. Rather than stop Globex trading on major USDA report mornings, opening floor trading would offer more liquidity.
Opening the floor earlier addresses liquidity concerns, but doesn't address the complexity of the reports, said Roberts. When USDA issues major reports, traders look first for headline numbers such as yields and carryover estimates. Then they get into the global numbers and regional shifts in supply and demand.
"So it's going to be a lot of seesawing and a lot of volatility within the first 30 minutes of trading" if the floor opens ahead of the reports, said Roberts.
He said that if floor trading opens early on major report days, producers may gain some pricing opportunities, but "It's gong to be so unpredictable." Merchandisers likely will be under more stress as they deal with producer calls and margin risks amid the volatility.
However, Roberts added, "By the typical opening time a couple of hours later, I think the market will still end up where the market was going to end up. It will work through it. But there, in that first hour, there’s going to be a tremendous amount of back an forth, and a tremendous amount of confusion."
Focus on Business Management
Mark Welch, a Texas A&M economist, said the changes in trading hours will have some impact on producers and others who use futures and options as management tools.
"It's pretty obvious that many of the changes the exchanges are making are not focused on the needs and concerns of farm and ranch or commercial hedgers," said Welch. The changes are more aimed at accommodating high-frequency traders who generate trading volume.
Some producers may think they will have to watch the market whenever it's open, he said. "More and more in risk management education programs, we try to get farmers away from that mentality."
Welch expects that opening floor trading just ahead of major grain and oilseed reports would increase volatility.
"So, if a farmer is trying to use traditional hedging, what does it mean for his margin account? The financial stress of that could be extremely severe," said Welch.
Beyond the trading hours, Welch said he's concerned about potential pressure to expand trading limits.
"That is an important safeguard," he said. "If the market does get overblown or the bottom drops, there's a good period where it can calm down, take a breath, and analyze the numbers."
Before CME Group announced its plan to open floor trading early on USDA report mornings, Reuters reported that USDA Chief Economist Joe Glauber told representatives of several agriculture groups that USDA will seek public comments on revising USDA's schedule for major reports. Moving the release time to mid-morning, when trading volume is traditionally high, may reduce volatility.
For More Information
Find out how the expanded hours are affecting the ag markets. Read AgWeb's Marketing blogs.