* Markets would have higher limits when prices are high * 2-3 limit-move days a year expected under new mechanism By Tom Polansek CHICAGO, Jan 24 (Reuters) - CME Group Inc is considering a proposal to reset daily price limits for U.S. grain and oilseed futures twice a year based on underlying price levels in agricultural markets, documents distributed by the exchange operator show. The proposal would allow higher price limits when market prices are high and lower price limits when market prices are low, according to a CME fact sheet sent to market participants and obtained by Reuters. Limits would always be approximately six percent of the underlying nearby contract price. CME is collecting feedback on the proposal and hopes to complete any necessary submissions to regulators at the U.S. Commodity Futures Trading Commission by the end of February, a spokeswoman said on Friday. CME, which owns the Chicago Board of Trade, currently has initial daily price limits for grains and oilseeds that remain unchanged throughout the year. The move toward variable limits coincides with changing dynamics in global grain markets, with prices for crops such as corn and soybeans dropping after large U.S. harvests. Soybean futures in 2012 reached a record high because production fell during the Midwest's worst drought in decades. "If we are going to have limits in markets, they must be flexible to reflect the current situation rather than a situation from the past," said Rich Nelson, chief strategist for brokerage Allendale. Under the proposal, the first reset date for price limits would be the first trading day in May. The newly calculated limits would remain in effect until the last trading day in October. A mechanism for variable limits would benefit CME because "it relieves you from having to go to the CFTC every time you want to adjust something," said Jack Scoville, senior market analyst of Price Futures Group. The limits would be based on daily settlement prices collected for the July expirations for each of the CBOT grain and oilseed futures products over 45 consecutive trading days before and on the business day before April 16, according to the fact sheet. Average prices for each contract would be calculated based on the collected settlement prices and then multiplied by six percent. The resulting numbers would be rounded off for each contract. Markets that would be affected include corn, soybeans, soft red winter wheat, hard red winter wheat, soybean oil, soybean meal, oats and rough rice futures. "A price limit set at six percent of the underlying futures price will likely capture daily price moves with approximately 99 percent confidence," CME said in the fact sheet. "Thus, under normal market conditions, one should still expect two or three limit-move days per year under this mechanism." If a market settles up or down by the new limit during the six-month period, the limit would be expanded by 50 percent the next trading day, and remain at the expanded limit until no listed contracts settle at the expanded limit. The second reset date would be the first trading day in November. New limits would be calculated in a similar manner to the May reset. CME in 2011 increased the initial daily limit for corn futures to 40 cents per bushel from 30 cents as tight supplies caused repeated limit-up moves. Market participants who supported the increase had also encouraged CME to examine a system for adjusting limits based on price levels, according to the fact sheet.