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CBOT To Limit Speculators – for Feb. 16, 2009

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The Chicago Board of Trade on Feb. 9 said it amended its rule change to limit cash grain delivery instruments held by non-grain firms, its latest efforts to quell industry criticism for its longtime benchmark wheat contract.

The proposal, which has yet to receive regulatory approval from the Commodity Futures Trading Commission, would give nongrain firms another four months to reduce their soyoil delivery instruments and clarify reporting rules for commercial entities.

The rule change, effective on Feb. 17, would reduce the large number of delivery instruments held by companies not directly related to the cash grain industry and increase the hedging effectiveness of CBOT’s corn, wheat, oat, rice, soybean, soyoil and soymeal contracts, a CBOT advisory said.

Grain hedgers, led by the 900-member National Grain and Feed Association (NGFA), have complained for months that the traditional process of delivery for CBOT grain contracts, in particular its wheat contract, is broken.

The grain firms have complained about the role of Wall Street “index funds” and other investors inflating grain futures far beyond actual supply and demand, punishing short hedgers with ruinous margin calls and destroying “convergence” at delivery, when cash and futures prices traditionally have come together to make hedging work.

The rule change limits a nongrain firm to holding 600 shipping certificates or warehouse receipts for corn, soybean, wheat, oat and rough rice futures; 720 for soybean meal futures and 540 for soybean oil futures.

Non-grain market participants holding more than the set limit of shipping certificates or warehouse receipts for corn, soybeans, wheat, soymeal, oats or rice have until May 31 to comply. For soyoil, they have until Sept. 25.

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