Wheat traders say new futures limits change the game
CHICAGO (Reuters) - Expanded daily trading limits and sharply higher margin requirements to trade soaring U.S. wheat futures have changed the game and left traders wondering how the market will react.
"It is a very big deal," said Vic Lespinasse, a veteran grain market analyst for Illinois Grain, a brokerage house. "I do not know what is going to happen."
The three major U.S. grain exchanges said in a coordinated statement late on Friday that they will raise the daily trading limit in wheat futures to 60 cents per bushel from 30 cents, starting with the February 11 trade date.
The new limits take effect with Sunday night's electronic session that begins at 7 p.m. EST.
The limit will rise 50 percent, to 90 cents, on the next business day and another 50 percent on each subsequent day when two or more contracts in the same crop year close limit up.
The exchanges requested the changes on Friday and they were approved by government regulators the same day "to enable the markets to fulfill their price discovery and hedging functions," the Commodity Futures Trading Commission said.
The emergency move came only one day after two exchanges -- the Kansas City Board of Trade and the CME Group CME.N, parent of the Chicago Board of Trade -- said they would raise trading limits to 40 cents from 30 cents on February 12. The Minneapolis Grain Exchange said separately it would remove the price limit on its spot March contract, starting February 25.
That did nothing to calm the markets, which on Friday closed locked up the 30-cent daily limit for the fifth straight day in a buying frenzy from both speculators and grain users.
Once wheat futures rise the daily limit, exchange rules prohibit them from trading higher until the next session.
But the new rules do not change the fundamentals that have sparked the rally of the past few weeks, traders said.
"There is a good chance on Monday that we will probably trade limit up again," said Markus Groebner, a wheat options trader at the Kansas City Board of Trade. "I just hope that we use it as a hedging tool and not as a financial toy."
To cool speculative frenzy, the exchanges have also set sharply higher margin requirements -- good faith deposits paid to hold futures positions -- for wheat traders. Costlier margins often cast a bearish tone on markets, Lespinasse said.
At Monday's close, initial speculative margins on each CBOT wheat contract rise to $4,050 (up 100 percent from Friday) and KCBT wheat margins to $4,050 (up 116 percent). MGE raised its wheat spec margin 54 percent to $3,510 per contract on February 7.
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