For decades most of the trading in crops like corn, wheat and soybeans followed a unique pattern with markets closed for several hours a day so traders could take time to analyze various data. Those leisurely trading days have now ended thanks to increased competition among exchanges for agricultural contracts and a push for more electronic trading.
This week the world’s largest agricultural commodity market, Chicago-based CME Group Inc., expanded daily trading by four hours and will now be open 21 hours a day. The move came after the Intercontinental Exchange, or ICE, launched rival grain contracts this month and kept electronic trading open for 22 hours a day. Two other major agricultural exchanges, the Kansas City Board of Trade and Minneapolis Grain Exchange, also plan to start trading nearly round the clock.
The changes haven’t pleased everyone. Several farm groups have complained that the increased trading hours will lead to wild swings in crop prices and distort markets because traders won’t have time to properly assess the almost daily flow of information from government and other sources. Floor traders at the Chicago Board of Trade, which is owned by the CME, also fear the move will push them out of the market altogether as more trading shifts to computers.
Until now, most trading in farm products followed a schedule far different from stock markets. While equity markets keep largely business hours, commodity markets opened and closed at different times during the day. For example, the CME opened all night for electronic trading from 6 p.m. (Central time) to 7:00 a.m. That was largely to accommodate traders in Europe and Asia. The exchange closed from 7:00 a.m. to 9:30 a.m. and then re-opened for floor trading until 1:15 p.m. Then it closed once more until 6 p.m. The breaks coincided with the regular release of critical agricultural data, such as crop reports and export sales figures from the U.S. Department of Agriculture.
As of May 20, the CME is open non-stop from 5 p.m. to 2 p.m. from Sunday to Friday. The exchange had planned to stay open even longer, but backed down after facing a backlash from several farm groups. They worried about trading during the release of farm data.
“Trading through release of these reports could lead to extreme volatility immediately following their release,” the National Grain and Feed Association and North American Export Grain Association said in a joint statement. “Further there is currently unequal access to USDA report data due to Internet connection speeds and analysis capabilities.” Both groups urged regulators to hold hearings on the expanded trading hours but have now agreed to the CME’s shorter, 21-hour day.
Others remain worried. “We believe it is prudent that these reports be released while futures markets are closed so that all market participants have the opportunity to access and analyze information and adjust their positions before trading resumes,” said the National Corn Growers Association.
Analysts said the CME had no choice but to respond to the demands of hedge funds and other institutional traders who want to access markets for longer periods. They also said the exchange had to meet the challenge from ICE, which is expanding aggressively into agricultural commodities. ICE already trades sugar and canola, and it recently opened contracts in Canadian wheat and barley to take advantage of the recent changes to the Canadian Wheat Board. In April, ICE announced plans to launch contracts in U.S. corn, wheat and soybeans. Those products have long been dominated by the Chicago Board of Trade.
“I think what these exchanges are all after is more volume and so they feel extending the hours is going to get more volume,” said Jerry Klassen, manager of the Winnipeg office for GAP SA Grains & Produits, a Swiss-based grain trader.
The U.S. Commodity Futures Trading Commission, which regulates commodity trading, has approved the expanded hours and the CME said it will review concerns about trading during the release of government reports.
But one CFTC Commissioner, Bart Chilton, said the issue raises “a larger matter about the kinds of, and styles of, traders and trading in markets.” In a statement, Mr. Chilton said he “reluctantly supported” the expanded hours and added: “At a minimum, these issues deserve a more comprehensive conversation, and quickly.”