Reason for Daily Trading Limit Change Doesn't Ring True for NCGA
NCGA says the move is not in the best interest of farmers.
Compiled by staff
Published: Aug 23, 2011
The Commodity Futures Trading Commission has agreed to raise the daily trading limit on corn from 30 cents to 40 cents per bushel starting Monday. The National Corn Growers Association says that could potentially have a negative impact on farmers causing more volatility and adding unnecessary risk.
CME's proposal ran into stiff opposition from farmers, grain elevators and food companies, who said the increase was unnecessary. They complained the larger limit would increase volatility in the corn market and expose hedgers to bigger margin calls if prices surge although CME said those concerns were unfounded. CME dialed back the proposal in response to initial objections. It originally proposed to increase the daily limit to 50 cents.
NCGA Vice President of Production and Utilization Paul Bertels says one reason stated for the change is price discovery.
"One of them that they kind of hung their hat on was raising the daily limits for price discovery," Bertels said. "The whole concept there is that if the market has an artificial stop up or down the board really isn't providing its function for price discovery."
Bertels says that doesn't ring true because there are few occasions where there is back-to-back limit moves. He says you have to look at the real answers, and it's becoming more about movement in the corn market.
"They make money per trade," Bertels said. "If you can raise that stop to allow more trade that's more revenue for them; it makes sense for them. Our position and the reason we oppose this is it isn't in the best interest of our farmers."
Also, Bertels says farmers will have to provide more margin money up front so that they won't get knocked out when there is a move against the position. He says the same goes for elevators that trade.
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Tagged: National Corn Growers Association, Bushel, NCGA
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