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Veteran Advisor

Corn limits approved

CME Group just announced the daily corn limits will go up August 22, 2011. The CFTC has approved the CME Group's proposal to raise the daily trade limits. What do you think?  The announcement is below:


August 9, 2011 – CME Group, the world’s leading and most diverse derivatives marketplace, today announced it had 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. 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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3 Replies

Re: Corn limits approved

What are the functions of limits? If a limit is set so it is seldom or often hit does that mean it is inefficient?
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Re: Corn limits approved

So much for circuit breakers in the market.  This is like raising the limit on my wife's (insert what you want here) credit card because she keeps hitting the limit and really has to buy that pair of shoes.  I really want her to go home and think about it first.  If the problem is we hit the limit a few times or even more than before lets just take them off.  Who wants to play in that game my banker won't be real excited about that, hay but I can get in or out if I have too just $2.00 away.  Maybe we have the limits too large all ready anyone remember $.30 up followed by $.45 down? 

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Senior Contributor

Re: Corn limits approved

its good for da playas, not so much for us.

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