Market Matters Blog

New Daily Price Limits Effective May 1

Hey -- guess what? May Day is almost here. It's this Friday, to be specific. When I was a little girl, I used to make baskets out of construction paper, fill them with popcorn and leftover Easter candy, leave them on my neighbor's front steps and play ding-dong ditch. I can't help but laugh at myself two decades later. The fact my mother let me do it in the first place still perplexes me, except I now understand that most of my neighbors weren't home to be disturbed by the doorbell.

There's something else to remember this May Day: CME's new daily price limits. Last year, CME introduced a formula for establishing new limits (more on the math below) that would reset on May 1 and November 1 each year. This time, only the limits for corn, Chicago wheat, soybean oil, oats and rough rice changed.

(All price limits are per bushel unless otherwise noted.)

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Commodity Current Price Limit New Price Limit New Expanded Limit
Corn $0.25 $0.30 $0.45
Soybeans $0.70 $0.70 $1.05
CBOT Wheat $0.35 $0.40 $0.60
KC Wheat $0.40 $0.40 $0.60
Soybean Oil $0.025/pound $0.02/pound $0.03/pound
Soybean Meal $25/ton $25/ton $40/ton
Oats $0.25 $0.20 $0.30
Rough Rice $0.90/cwt $0.75/cwt $1.15/cwt

Under CME's new variable price limit formulation, the daily limit is set at 7% of the average settlement price of 45 consecutive trading days. The May readjustment will be based on the July contract's settlement prices while the November adjustment will use the December contract for most grains, and the November contract for soybeans and rice.

CME has previously told me that historically, 99% of the price changes in the grain market have been 7% or less. With the variable limit format, CME expects maybe one or two days with limit moves each year.

CME also established minimum daily price limits -- 20 cents on corn, 50 cents on soybeans and 30 cents on the wheats -- in case the 7% formula is overly restrictive. The higher of the two calculations will be used as the price limit.

The variable price limit mechanism allows for expanded daily limits. If the contract settles up or down the limit, the next day's limit will be expanded 50% and rounded up to the next 5-cent mark. For example, if corn futures settle up 30 cents per bushel (in two contract expirations or in the last contract of the crop year), the limit will expand to 45 cents per bushel the next day and remain at that level until no corn futures contract expirations settle at the expanded 45 cents limit.

If the criteria is met in one of the contracts of the soybean complex (beans, meal or oil), the limits will expand for the whole complex.

(AG\SK)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]

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