CME might widen daily corn limit to 50 cts

CHICAGO, April 26 (Reuters) - The CME Group Inc (CME.O) is considering widening the daily trading limit in Chicago Board of Trade corn futures to 50 cents per bushel, from the current 30 cents, a spokesman for the exchange said Tuesday.

"It's something we're considering and discussing with market participants," CME spokesman Chris Grams said.

The exchange last expanded the daily limit in corn in March 2008, to 30 cents from 20 cents. At that time, front-month CBOT corn futures Cc1 were trading at $5.60 a bushel and were on their way to a then-record high of $7.65 in June 2008.

That peak price was surpassed this month as front-month corn reached $7.83-3/4 on concerns about extremely tight supplies. The U.S. corn supply is forecast to drop to 675 million bushels by Aug. 31, the smallest amount measured as a percentage of usage since the 1930s.

Once a futures contract rises or falls by the daily limit and stays there, trading stops. At that point, the only way to trade the market is through options, in moves that create synthetic futures positions.

In 2008, the move to widen the daily limits for grains followed several consecutive days of limit-up or limit-down moves, fueled by tightening global grain supplies and rising speculative interest in commodities.

Now, analysts said CME wants to head off that scenario.

They said the exchange appears to be preparing for more volatility as the growing season for the next U.S. corn crop unfolds.

"I'd say they are trying to be a little proactive, looking at the potential for some volatile trade if we were to have a drought situation develop or something like that," Prudential Bache Commodities analyst Shawn McCambridge said.

"It is more orderly to allow the market to trade and discover the price, rather that go limit the first thing in the morning," McCambridge said.

With tightening stocks of old-crop corn, the futures market has been even more sensitive than usual to weather threats that could reduce yields in the U.S. Corn Belt. Planting is already behind schedule due to wet conditions in much of the Midwest.

Nevertheless, higher daily limits could pose a challenge for grain elevators and other commercial grain users that hedge their inventories by selling corn futures to offset the risk of falling cash prices.

These players could face higher margin calls if a spike in the market, compounded by a wider daily limit, caused a loss in their short futures position.

"The limits they have now seem to be working, and I think going to 50 cents would be a mistake," said Harry Bormann, grain team leader with MaxYield Cooperative in West Bend, Iowa.

"Higher limits mean we have to margin more.... It's going to be a cost to us," Bormann said.

"It seems the Board of Trade is really focused on the speculative side of the business, and maybe not so much for the commercial like us," Bormann said.

(Reporting by Julie Ingwersen;editing by Sofina Mirza-Reid and

David Gregorio)

(Source: http://www.reuters.com/article/2011/04/26/markets-cbot-corn-limits-idUSN2626335120110426)