The owner of the Chicago Board of Trade is trying to win over farmers, food companies and livestock producers on a plan to allow wider swings in U.S. corn prices.

CME Group Inc. (CME) wants to expand how much the price of a corn futures contract can rise or fall in a day. As futures for the grain trade are at historic highs, the market is seeing sharper, absolute moves. That is leading to a growing number of contracts that hit a standstill as prices reach the existing limit of 30 cents per bushel in either direction. Corn futures touched an all-time record of nearly $8 a bushel last month, a far cry from $3.25 a bushel in mid-July 2009.

"A market that doesn't trade, or can't trade, isn't able to perform its function of price discovery and price risk management," said Fred Seamon, CME's associate director of commodity research and product development.

CME already has backed away from its original proposal to raise the limit to 50 cents. Executives at a meeting here Tuesday worked to sell a 40-cent limit at meeting one floor above the board's iconic trading floor.

Executives pointed to the increased swings to the one-day price limit. Through mid-July, 68 corn contracts have settled at or above the 30-cent limit, compared to 36 corn contracts in all of 2010. The exchange last expanded the limit in March 2008 with an increase to 30 cents a bushel from 20 cents a bushel.

The proposal is pitting producers against the exchange and some speculative traders who don't have an interest in the underlying commodity.

Clients, such as ranchers and grain elevators, who rely on futures contracts to protect themselves against gyrating markets say the increase is unnecessary. They predict the expanded limits will increase the amount of money producers must put up to cover themselves against potential losses--a claim CME executives disputed Tuesday.

Opposition to the proposal has been strong since CME first proposed it this spring. The U.S. Commodity Futures Trading Commission has received nearly five dozen comments expressing concern about it, including letters from meat giant Tyson Foods (TSN) and the American Farm Bureau Federation, a national organization representing farmers and ranchers.

"Really I don't see anybody that's in favor of it," said Karl Setzer, analyst for MaxYield Cooperative in Iowa, before Tuesday's meeting.

The concerns of farmers and livestock producers contrast with speculative traders who support a higher limit because it doesn't restrict their participation in the market. They don't have to worry about acquiring physical corn or hedging their risk and argue an increased daily limit is needed to keep pace with the run-up in prices.

Trading stops when a futures contract rises or falls to the daily limit as a way of controlling risk for market participants. That limits volume in the market and profits for CME, which makes more money when the number of trades rises. Grain users suspect CME wants to increase the limits so it doesn't miss out on trading volume.

CME said its aim is to maintain price discovery in the market, which is impeded when trading stops at the daily limit, and not on expanding trading volume. A spokesman said the exchange hadn't done "any analysis around volume effects on limit move days."

The CFTC is expected to review the proposal into August.

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