UPDATE: CBOT Seeks To Raise Daily Corn Trading Limit To 40 Cents

CME Group Inc. (CME) on Tuesday dialed back its proposal to increase the daily trading limit for U.S. corn futures following complaints from commercial grain users.

The exchange is seeking to raise the daily limit for corn futures at the Chicago Board of Trade to 40 cents from 30 cents, abandoning an earlier proposal to expand the limit to 50 cents. CME owns the CBOT.

Commercial users of corn, including grain elevators and livestock producers, largely opposed the proposed 50-cent limit because they said it would expose them to larger margin calls if the market surged. They also complained it would increase volatility by allowing greater swings in prices.

Letters to the U.S. Commodity Futures Trading Commission, which must approve adjustments in the daily trading limit, reflect concerns about CME's original proposal. Corn Products International Inc. (CPO), which supplies sweeteners and starches to food processors and industrial customers, told the CFTC the current 30-cent limit was sufficient.

"Increased limits will only create hardship for the traditional CME hedger by creating the potential for much greater daily price volatility and the absolute need to provide huge amounts of immediate added funding to meet increased margin calls," wrote Hugh Parker, the company's director of commodities.

CME said a wider limit is needed because of increased prices and volatility in the market. Corn futures reached record highs last month as demand remained strong for low inventories in the face of surging prices.

The exchange last widened the limit for corn in March 2008 with an increase to 30 cents from 20 cents. Corn futures at the time were trading around $5.50 a bushel and ended up climbing to a record high of $7.65 a bushel in June of that year. That record was broken last month with the market setting a new, all-time high of $7.83 3/4 a bushel. The nearby contract closed Tuesday at $7.06 a bushel.

The exchange reduced the proposed increase "after significant discussion with customers and representative trade groups," said Tim Andriesen, CME's managing director of agricultural commodities and alternative investments. "Wider limits have an impact on many of our commercial customers," he said in a statement, without elaborating.

The 40-cent limit seemed to strike market participants as a fair compromise. Karl Setzer, analyst for MaxYield Cooperative in Iowa, said "40 cents is much more palatable." MaxYield had written to the CFTC opposing the 50-cent limit.

Trading stops when a futures contract rises or falls to the daily limit as a way of controlling risk for market participants.

Under current rules, the daily limit can temporarily expand to 45 cents from the base limit of 30 cents if two or more futures contract months settle at the daily limit. The limit can expand again to 70 cents if the market finishes at the daily limit for a second day. Under the new proposal, price limits would be 40 cents, with a maximum of one increase to 60 cents.

-By Tom Polansek, Dow Jones Newswires; 312-341-5780; tom.polansek@dowjones.com

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