CBOT wheat volumes rise in extended session, bucking trend

CHICAGO Wed Feb 13, 2013 4:09pm EST

CHICAGO Feb 13 (Reuters) - Volume in Chicago Board of Trade wheat futures has received an unexpected boost since CME Group extended the trading day, bucking an overall trend that has seen volume in commodity trading dry up in the longer session.

Wheat volume rose to 17.6 million contracts traded from June 2012 through January 2013, up 14.8 percent from a year earlier. Volumes were higher in seven of those eight months.

CME started its much-maligned extended trading session, which allows for 21-hour trade, in late May. Critics have said the move reduced liquidity in key agricultural contracts, and the exchange operator recently announced it would cut back the session although no details have been provided.

Corn volumes have fallen 10.4 percent during the same time, and monthly trading was lighter in seven of the eight full months since the switch to extended hours was made.

Total CBOT volumes fell 8.4 percent following the switch to longer hours. CME extended the trading day as part of a bid to fend off competition from the rival IntercontinentalExchange , which launched grain and soy contracts that trade 22 hours a day in 2012.

The global reach of wheat, which is grown all over the world, lends itself to near-24-hour trading better than a commodity like corn.

Big wheat producers such as Russia and Australia often make forecasts about crops outside of traditional trading hours. Additionally, large purchases from importers such as Egypt are often finalized before the start of the trading day in Chicago.

News about wheat hits throughout the day and commercial buyers across the globe are eager to take advantage of hedging opportunities no matter what time it is in the United States.

For example, Australian traders looking to hedge recent cash market deals can make their moves as soon as they need to, instead of waiting for the Chicago pits to open.

"Everybody sleeps at a different time," said J. Mark Kinoff, president of Ceres Hedge.

By contrast, the majority of the world's corn is grown in North and South America so most major announcements regarding those crops, and subsequent prices moves, come during the traditional trading hours for the Chicago grain contracts.

Wheat volumes also benefited from a surge in corn prices to record highs during the summer. The high price of corn, as well as limited supplies, forced livestock producers to use more wheat in their rations than usual.

The increased wheat feeding also caused an increase in futures market hedging, adding to the bump in trading volumes.

Huge price swings in wheat also helped to raise volumes, traders said. Wheat prices shot up 27 percent between the middle of April and early July, forcing speculators to scramble to cover short positions they had built up due to light export demand and expectations for a big crop in the U.S. Plains.

Commodity Futures Trading Commission data shows that noncommercial traders, a category that includes hedge funds, completely erased their net short position in wheat, which they had built to the highest level ever, during that 11-week period.

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