CME Group Inc., owner of the world’s largest grain market, is backing off an expansion of trading hours in May that left some traders complaining that 21 hours a day left them with little sleep and less liquidity.
Even before completing a survey of users, CME Group told customers in a Jan. 29 letter that it has heard enough “to be able to decide to reduce trading hours” at the Chicago Board of Trade. The company, owner of the world’s largest futures market, expanded grain trading to 21 hours from 17 partly to compete with new contracts offered by Intercontinental Exchange Inc. 22 hours a day. Chicago-based CME said it will provide details on the planned revisions in coming weeks.
“We don’t need that many hours,” Tom Neher, who helps manage $2.1 billion in loans and leases to farmers as a vice president at lender AgStar Financial in Rochester, Minnesota, said in a telephone interview. “I understand why they do it, to compete with ICE. But if you’re an analyst or a trader, it’s hard to keep an eye on the markets that many hours a day.”
Reduced hours at the CBOT, the largest market for corn, soybeans and wheat, will benefit traders by reducing the stress of having to check prices overnight while boosting liquidity that had thinned during periods when few people were around, said Dan Cekander, the director of grain-market analysis for Newedge USA LLC, the second-biggest U.S. broker by customer equity.
The National Grain & Feed Association, a Washington group that represents more than 1,050 companies that store, export and process about 70 percent of all U.S. grains and oilseeds, said in a release that the statement by CME was a “positive first step” toward reducing trading hours. The U.S. is the world’s largest agricultural exporter.
“It’s a bit of a head-scratching move after all the moves in the past year to expand hours to fight the competition from the ICE exchange,” Don Roose, the president of U.S. Commodity Inc. in West Des Moines, Iowa, said by telephone. “The risk for the CME is that if they make another adjustment to cut hours, the trading volume may move to the ICE, which has kept things stable.”
The CBOT, where grain has been exchanged since 1877, remains the dominant location for trading. The exchange handled 73.2 million corn futures contracts in 2012, down from 79 million in 2011, CME data show. Soybean trading rose 15 percent to 52 million contracts last year, while wheat volume rose 13 percent to 27.4 million.
ICE handled 464,155 corn, wheat, soybean, soybean-meal and soybean-oil futures in 2012, since starting in May, exchange data show. The biggest month for ICE was 84,024 contracts in July. During that same month, CME handled 18.09 million.
In their Jan. 29 letter to customers, CME Executive Chairman Terrence Duffy and Chief Executive Officer Phupinder Gill said they were considering a trading “pause” during market-moving reports from the U.S. Department of Agriculture, “if all exchange and trading venues would do the same.”
Brookly McLaughlin, the director of corporate communications at Atlanta-based ICE, said the company has no plans to change its trading hours.
The National Grain & Feed Association urged a trading halt for monthly USDA reports on supply and demand, saying that the participation of high-frequency traders in the grain markets has “raised concerns about volatile futures-market moves immediately preceding and following the release of USDA reports.”
Pausing markets to allow more time to evaluate USDA data would be a benefit to traders and analysts who have been forced to make snap decisions on 40-page government reports filled with new forecasts and data tables, Roy Huckabay, an executive vice president for the Linn Group in Chicago, said by telephone yesterday.
The USDA on Jan. 11 changed the release time for its monthly supply-and-demand report to noon in Washington from 8:30 a.m. in response to customer concerns. The agency has “no further plans to change our release schedule,” USDA chief economist Joseph Glauber said in an e-mailed statement.
“USDA agriculture reports can have 10 to 30 equally important data points in one report,” Huckabay said. “It is impossible to discern the importance to the market in milliseconds off of headlines. Sometimes, the headlines released within one report can have totally different impacts on prices. My base of customers would vote nearly 100 percent for a closure during government reports.”