The National Corn Growers Association has expressed its disagreement with the Commodities Futures Trading Commission's decision to raise the daily trading limit on corn. Under the CME Group plan approved by the U.S. futures regulator, the trading limit will rise from 30 cents per bushel to 40 cents per bushel, beginning August 22. NCGA believes that this will not aid price discovery and that, ultimately, growers will bear the cost.
"We believe that this rule change could negatively impact farmers by needlessly increasing market volatility and adding unnecessary risk," said NCGA President Bart Schott. "NCGA understands that both non-commercial traders and speculators play a valuable role in the futures market, but we also understand the importance of daily price limits, which serve as a check against irrational price runs."
On May 11, NCGA sent a letter to CFTC opposing the proposed increase in daily trading limits. In this letter, it noted that CME failed to demonstrate how increasing daily trading limits would lead to greater price discovery. Additionally, the letter stressed that further increased daily limits place higher margin requirements on grain elevators. These margin requirements are ultimately passed along to growers in the form of wider basis and lower cash prices.
For a copy of the letter, click here.
The CFTC approved the proposed rule change despite failure on the part of the CME to demonstrate instances in which trading was halted due to limits on consecutive days.
"For farmers, trading rules have a concrete impact on profitability," said Schott. "It is unacceptable to base this real world decision impacting farmers nationally on ephemeral theories on price discovery."