Markets unPACKed: CME Group PSA

Markets unPACKed: CME Group PSA


These past six months we have seen the grain markets come alive again in our ‘once every 10 years’ moment with an exciting global supply/demand story, record speculative trading, and weather concerns.

Naturally, one catalyst to these exciting markets was fund involvement. The grain markets saw record long positions in corn and beans as money managers recognized opportunities in market volatility and naturally were looking for additional asset classes during globally troubling times.

The PSA is that CME’s expanded speculative position limits for agricultural futures went into effect on Monday, March 15. When we say expanded, let us not underestimate that. For example, the all-months-combined limit for corn would increase from 33,000 contracts to 57,800 contracts. That is a 43% increase.

What does this mean? From a market outlook, increased speculative participation will lead to increased volatility, which is what has made these markets exciting and alive. For the farmer, analysts fear prices getting pushed away from supply-demand data and susceptible to manipulation.

For some history, this was finally adopted in October 2020 after the CFTC made numerous attempts at establishing a positions limits rule since congress passed the requirement as part of the 2008 Dodd-Frank financial reform legislation. In 2013 and 2016, these rules were proposed again but never finalized due to concerns of bona fide exemptions. This was not merely a response to record speculative interest these past few months.

Increased speculative position limits does not just benefit money managers but allows legitimate hedgers sufficient exemptions to carry out increased hedging business to optimize income; however, the fear still looms of non-commercials increasing bearish positions during times of grain supplies, leading to even lower prices.

As for the rest of March, the next mile marker for price action is the prospective planting report for U.S. supplies on March 31. Last week, the grain markets faced a USDA report that was very neutral to unchanged. The markets had a delayed response with some selling off the following day, but essentially the report was a non-event.


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