The CME Group today announced plans to implement variable price limits for grain and oilseed futures and eliminate price limits on grain and oilseed options. Product impacted include corn, soybeans, SRW wheat, HRW wheat, mini-sized corn, mini-sized soybeans, mini-sized wheat, soybean oil, soybean meal, oats and rough rice. Pending CFTC approval, the plan goes into effect May 1, 2014.
Currently, the exchange applies fixed daily price limits on all Chicago Board of Trade (CBOT) grain and oilseed futures and options. The new variable price limit mechanism will allow higher limits when prices are high and lower limits when prices are low.
CME Group says the new variable price limit mechanism resets price limits in each of the CBOT grain and oilseed futures contract every six months. The first reset date would be the first trading day in May based on the following:
- Daily settlement prices will be collected for the July contracts for each of the CBOT grain and oilseed futures products over 45 consecutive trading days before and on the business day prior to April 16th.
- Average prices for each contract will be calculated based on the collected settlement prices and then multiplied by seven percent. The resulting number would be rounded to the nearest 5 cents per bu. for corn, soybeans, CBOT SRW wheat, KC HRW wheat and oat futures; $5 per ton for soybean meal futures; 0.5 cents per pound for soybean oil futures; and $0.05 per cwt for rough rice futures to determine the new initial price limits for futures.
- The second reset date would be the first trading day in November. The November price limit reset will be determined in a manner similar to the first reset in May. The only difference would be that December contracts (November contracts for soybeans and rough rice futures) will be observed over 45 consecutive trading days before and on the business day prior to October 16th.
The Exchange will implement the following price limit floors to ensure the limits will not be overly restrictive: 20 cents per bushel for corn and mini-sized corn futures; 30 cents per bushel for Chicago SRW wheat, mini-sized Chicago SRW wheat, and KC HRW wheat futures; 50 cents per bushel for soybean and mini-sized soybean futures; $20 per ton for soybean meal futures; 2 cents per pound for soybean oil futures; 20 cents per bushel for oat futures; and $0.50 per cwt for rough rice futures. Thus, the price limits implemented each May and November will be the higher of the seven percent calculated values and these specified minimum limits.
Newly determined futures price limits will become effective on the first trading day in May and will remain in effect until the last trading day in October. At the end of the six-month period, the price limits will be reset to new levels and will remain in effect from the first trading day in November until the last trading day next April.
CME Group explains this mechanism continues to allow for expanding daily price limits. If a settlement occurs at the established initial price limit, the limit will be expanded by 50% the next trading day (rounded up to the nearest 5 cents per bushel for corn, mini-sized corn, soybeans, mini-sized soybean, Chicago SRW wheat, mini-sized Chicago SRW wheat, KC HRW wheat, and oat futures; $5 per ton for soybean meal futures; 0.5 cents per pound for soybean oil futures; and $0.05 per cwt for rough rice futures), and remain at the expanded limit until no listed contracts settle at the expanded limit. "For example, if the corn futures price limit is set at 25 cents per bushel and at least two corn futures expiration months or the last contract month in a crop year settle at the 25 cents per bushel limit, the corn futures price limit would expand to 40 cents per bushel on the next trading day and remain at that level until no corn futures contract expirations settle at the expanded 40 cents limit, at which time the limit will return to the initial 25 cents per bushel price limit," it explains.
One special case is the soybean crush complex, says CME Group. If one of the three components of the soybean crush (soybean, soybean meal and soybean oil futures) triggers a limit, the exchange would expand the limits by 50% (rounded up to the nearest 5 cents per bushel for soybean and mini-sized soybean futures; $5 per ton for soybean meal futures; 0.5 cents per pound for soybean oil futures) for the entire soybean crush complex to ensure the normal trading of the soybean crush.
"Currently, grain and oilseeds options have the same price limits as their underlying futures. The exchange will remove price limits for all grain and oilseeds options starting on trade date May 1, 2014. This change will apply to all grain and oilseeds options, including standard, serial, weekly, short-dated new crop, calendar spread, and inter-commodity spread options," it adds.