CME Hour Change Affects Elevator Pricing


by Chris Clayton, DTN Ag Policy Editor

OMAHA (DTN) — Grain buyers and elevators are going have to deal with issues of the settlement price in the CBOT open pit as well as a closing price on electronic trading nearly three hours later under the push for 22-hour electronic trading of grains and oilseeds.

Moreover, grain merchandisers could be faced with making quick market calls on USDA report days as electronic trading rolls right through release of USDA production and stocks reports.

Those are a few of the concerns raised after CME Group announced Tuesday that it would expand electronic trading hours for CBOT grain and oilseed futures to 22 hours a day, running effectively from a 6 p.m. CDT open to 4 p.m. close on Monday through Friday, and starting up trade again on Sunday at 5 p.m. CDT.

Yet, the open-outcry, or trading floor, at CME Group will continue to trade those contracts from 9:30 a.m. to 1:15 p.m. CDT Monday through Friday.

USDA’s National Agricultural Statistics Service and its board are discussing the implications of a 22-hour trading day on the agency’s report calendar. “Any change to the report release schedule is complex, has far-reaching impact, and would be taken very deliberatively,” said Hubert Hamer, chair of the NASS Agricultural Statistics Board.

The CME’s move comes after the IntercontinentalExchange, Inc. had announced earlier that it would offer corn and soybean contracts starting May 14 as part of a foray into more North American agricultural markets. The ICE trading will begin at 7 p.m. CDT and close at 5 p.m. EDT.

CBOT grain markets now have electronic trading from 6 p.m. to 7:15 a.m. Electronic trading also then runs parallel to the open-outcry trade.

CME Group may not be allowed to start its 22-hour trading period on May 14 as the exchange announced. While CME Group is allowed to self-certify a change in the trading hours, the exchange still must file the proper paperwork with the Commodity Futures Trading Commission. The CFTC requires that paperwork be submitted at least 10 business days before the actual change occurs, partly to allow people to comment. CME has not met the timeframe to file that paperwork and begin 22-hour trading on May 14.

“Once that self-certification is received it would be posted on the commission’s website,” said David Gary, a CFTC spokesman.

The CFTC is given 10 days to examine the application and determine if the commission has a problem with it.

A spokesman for CME Group was unable to immediately respond to questions about the CFTC comments.

The 22-hour grain trade raises questions on the way grain elevators will handle buys from farmers and how the prices will be pegged. The National Grain and Feed Association issued a statement citing that NGFA recognizes the CME Group’s decision was based on the competitive environment in the futures industry. However, NGFA members have concerns about several elements of the CME’s plans.

“First, there is concern about added personnel costs to monitor markets essentially around the clock,” NGFA stated. “Second, there is significant concern about the market being open during release of USDA crop reports. In particular, accessing those reports is not generally a quick and simple process. There may be competitive advantages for firms or individuals who are able to access and process report information earlier than others.”

NGFA members also have raised questions over details not contained in the CME Group’s announcement, including issues around the settlement time. “We will be seeking more detailed information from CME on these and other matters, which will be essential given the relatively short time for the industry to adapt prior to the planned May 14 implementation.”

Randy Dunn, grain department manager for First Cooperative Association in Cherokee, Iowa, said he is concerned about the effects of trading platforms on days of USDA reports. Now those reports are released at 7:30 CDT, allowing time to process the numbers and assess the effects.

“I can see it being a problem,” Dunn said. “When all that information comes out, there could be mass confusion concerning how these numbers should really affect the market. They may cause some pretty wild gyrations until people have had time to research the numbers and make sure they make sense.”

Dunn notes he has seen opening calls change from the time USDA reports are released to the time CME trading opens. Dunn said he thinks CME either needs to stop trading in those morning hours or USDA should move those market reports to 4 p.m. to give market participants time to digest the numbers.

Dunn also said he doesn’t know how the settlement price from the pit at 1:15 p.m. will be used because then the ending price will come from electronic trading at 4 p.m.

“So how do you put out a bid sheet?” Dunn said. “If 1:15 p.m. becomes the official bid sheet, what do you use to change the price until 4 o’clock? … I’m thinking having a 1:15 and a 4 p.m. close is going to muddy the waters a bit and farmers are going to struggle with it.”

Dunn said he doesn’t understand why the CME doesn’t close at 1:15 p.m., then fire back up the electronic trade at 3:15 p.m. to maintain the settlement price everyone now operates under.

Traci Gunderson, grains supervisor for Countryside Cooperative in Durand, Wis., said the cooperative is talking about setting buying hours that end at a certain time of the day. “From the cooperative’s standpoint it could leave us with less risk if we are only buying when those markets are open,” Gunderson said.

With the market closing at 4 p.m., Gunderson said Countryside would likely continue buying until then. The cooperative would need a hiatus from buying grain simply to ensure there is time to catch up on paperwork and necessary procedures.

“What we’re looking at with the buying hours is what you are buying you should be hedging because the market would be open,” she said. “So there would be some advantages.”

Countryside could drop a daily price sheet, Gunderson said. By the time a price sheet would come out, the grain elevators would be open, buying again and seeing the price change.

A spokeswoman for Archer Daniels Midland Co. commented that the longer trading day would provide more opportunity for ADM to manage its risk. ADM is one of the world’s largest grain buyers. “We welcome the extended trading hours at the CME,” said Jackie Anderson, an ADM spokeswoman. “We trade in cash markets all over the world, all hours of the day, so the extension will allow us additional opportunity to manage our risk.”

Jeff Sprecher, chairman and CEO of ICE, was asked about its own introduction of corn and soybean contracts in a conference call Wednesday in which ICE reported a record first quarter for profits in part because of a continuing launch of new products.

“Look, we know when you step back the whole thing sounds kind of daft, but the reality is that we have just been inundated by customers that have asked us to do this,” Sprecher said. “We have a current agricultural business, as you know, and so as we have run that business and gotten to know people and our relationships have deepened, we just see more and more at large agro-business firms that are dissatisfied with the current offerings.”

Sprecher added that ICE sees an opportunity in U.S. agricultural commodities despite “the difficulty of competing with incumbents in this space, particularly good incumbents.” Sprecher implied ICE’s new products helped push the CME in the same direction.

“If it turns out that all of the shortcomings of competitors are changed and we don’t get a lot of volume, we really believe that working deeply with our customers to solve problems is at the root of our success,” Sprecher said. “And we will put a little notch on our belt that they owe us one and, hopefully, it will benefit at some other point in time. But net-net we are a customer-driven company and customers are demanding this from us.”

The link for changes in trading organization rules can be found at the CFTC website


© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.

Posted with DTN Permission by Haylie Shipp



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