New Wheat Limits

[TOM4CWB]

Here are new Wheat Futures Rules:

"FOR IMMEDIATE RELEASE
CME Group, KCBT and MGEX Announce Price Limit Expansion for Wheat Futures
CHICAGO/KANSAS CITY/MINNEAPOLIS, February 8, 2008 – CME Group, the Kansas City Board of Trade and the Minneapolis Grain Exchange announced today that all three exchanges will implement new price limits for Wheat futures and mini-sized Wheat futures on Sunday, February 10 for trade date Monday, February 11.
Price limits will be set at $0.60 per bushel above or below the previous day’s settlement price. Should two or more wheat futures contract months within a crop year (or the remaining contract month in a crop year) close at limit bid or limit offer, the daily price limits for all contract months on the respective exchange shall increase by 50 percent the next business day and an additional 50 percent each subsequent day two or more contract months within a crop year (or the remaining contract month in a crop year) close at limit bid or limit offer. Daily price limits shall revert back to $0.60 after no wheat futures contract month closes limit bid or limit offer for three consecutive business days. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month, except in Minneapolis where there are no price limits in the spot month on the first business day following options expiration.
The joint expansion of price limits is considered necessary due to the unprecedented price levels and volatility in recent market sessions and over the past year. Wheat futures on all three exchanges have closed at a limit move for successive sessions, and expanded limits will allow Wheat contracts to continue performing their price discovery and risk mitigation functions without being unduly constrained by limit price moves.
By acting in unison, the exchanges will help customers avoid additional risk resulting from distorted inter-market spread relationships that exist among the wheat markets when price limits are not consistent.
http://www.mgex.com/

Spot Month Price Limits to be Removed

The Minneapolis Grain Exchange received approval from the Commodity Futures Trading Commission (CFTC) to remove price limits on the spot Hard Red Spring Wheat futures contract month commencing the first business day after expiration of non-serial options on the spot month. This will be effective with the February 25, 2008 trade day which commences with evening trading on February 24 for the March 2008 Hard Red Spring Wheat futures contract."

[dalek]

SO by the math on my head the daily limit could conceivably be over $3 up OR down by Friday? Unlikely I know, but wow.

[Kodiak]

So what are the professionals thinking about this? I never like it when the rules are changed in the middle of the game.

Here's what I think....this could cause even more volatility, not less. Once cash goes 'no bid', (could happen on Monday) the bottom won't be seen -- until there is a realization that yes, there is a shortage of old crop wheat, then up we go again. Going to be a wild ride. The time leading up to the expiration of March contract will be anything but 'orderly'.

I think there is a bit of over kill here. Expanding the limits was needed, but this effectively removes them. The Exchanges/CFTC should have had a plan in place to adjust limits BEFORE the problem occured. Again, changing the rules mid-stream is not a good thing in my opinion.

[TOM4CWB]

Kodiak,

The rules this week are as follows:

Late Friday, the exchanges
reportedly announced they would expand limits to 60 cents
for Monday, February 11. If futures close limit up that day,
limits will expand to 90 cents on Tuesday. If trade has still not
developed, limits will be increased to $1.35 next Wednesday.

Interesting!

This wheat market needs to be satisfied... with supply... if 'designated area' wheat growers were allowed to participate... this would not have happened in the first place!

[FarmRanger]

"This wheat market needs to be satisfied... with supply... if 'designated area' wheat growers were allowed to participate... this would not have happened in the first place!"

I just hope it isn't the CWB that's caught short in this market, or we'll be the ones who pay twice for not being able to participate.

[chaffmeister]

kodiak:
about raising limits.
WCE did the same in 1984 in canola (June contract went to $722). $10 went to $15 went to $20. Maybe higher, I can't recall. The issue is liquidity – you gotta be able to trade out of things or else your risk actually increases. US co’s are now going out with no bid on wheat because, although they can put the hedge on, they may not be able to lift it.

If this is anything like 1984 canola, MGX will continue going north – locked up the even higher limit.

Once the nearby needs are satisfied tho, there will be nothing but air until the buyers sense they need to buy more.