Reuters / The CME Group, the largest U.S. futures market operator, is tinkering with its trading hours to try and please two factions in its oldest constituency: the grain industry.
Industry officials said CME is looking for a way to strike a balance between international grain companies that want shorter hours and small, rural grain elevators that like longer trading hours.
CME finds itself squeezed by two competing voices. Grain giants like Cargill, ADM, Bunge and Louis Dreyfus, which hedge millions of bushels every day, want shorter hours to save on staffing costs, avoid trading risks from thin volumes outside U.S. daytime hours, and profit on cash market trading.
But hundreds of smaller grain handlers known as country elevators like having the exchange open to hedge price risk at odd hours. These are usually the first point of sale for grain farmers.
Earlier this month, CME reversed a policy it put in last May that expanded hours at its Chicago Board of Trade grain market to 21 from 17, saying it would now cut hours. But CME said it was “continuing to vet alternatives with our customer base” and hadn’t made a decision on trading times.
CBOT grain markets are now closed just three hours a day from 2 p.m. to 5 p.m. CST, a huge contrast to decades of “pit” trading that lasted less than four hours (9:30 a.m. to 1:15 p.m.). In 1995, an electronic-only night session, open from 6 p.m. to 7:15 a.m. was added to draw business from big grain buyers in Asia and Europe.
Volumes on the night session have always been lower than U.S. daytime hours, when cash grain transactions in the world’s largest grower led activity. Nevertheless, CME last May again expanded hours, saying it needed to stay competitive with new grain contracts listed on CME’s rival, the all-electronic IntercontinentalExchange.
ICE grain volumes, however, remain minuscule. The grain trade has stayed at CBOT for the liquidity, and trade patterns show that a narrow few hours of the day still dominate.
Longer hours empower small elevators
CME declined comment, but grain traders said CME is weighing proposals that include cutting hours back to 9 a.m. to 1 p.m. and then 6 p.m. to 6 a.m., or a cycle that opens at 6 or 7 p.m. each evening and closes the next day at 1 p.m. (all times CST).
“It’s fine with me if they want shorter hours, but at least keep them open between 7 a.m. and 2 p.m. so these guys can get their grain hedged and lock in some margins and profits,” said Mike Hall, a futures broker who works with many Midwest farmer co-ops and country elevators and wrote a letter to the CME this week.
“Most commercial grain business takes place between 7 a.m and 4 p.m. With some of the ideas being floated — you’re back to limiting these guys to only four hours to hedge,” Hall said. “It seems to me that the exchange is disenfranchising these people from the whole idea why the Chicago Board of Trade was started, for the producer and handler to transfer his risk.”
Hall and others said country elevators, buying grain when CBOT markets are shut, often end up calling the big firms like ADM or Cargill and resell the grain on a fixed or “flat-priced” basis, dodging the risk of un-hedged ownership but giving up the chance to profit from holding grain longer.
“Along come these longer hours,” Hall said. “They’ve gotten used to them, their margins and profits are a little more stable. And now you’re going to take that away from them?”