Three Wheat Exchanges Raise Price Limits — Again

Limits expand to 60 starting Sunday night; margins hiked too.

After proposing a 10-cent hike in trading limits earlier in the week, officials at all three U.S. exchanges invoked emergency rules to double their price limits, beginning with Sunday night's electronic trading, in an attempt to restore order to a wheat market that's on the verge of breaking down.

Daily limits in Chicago, Kansas City and Minneapolis futures expand to 60 cents for Monday's trade, which begins Sunday night. If the markets continue to lock up, limits will expand 50% each day until order is restored.

With synthetic trading in options valuing nearby March Minneapolis above $20, it could still take a while for the market to begin trading. Futures closed limit up at $15.53 on Friday for the nearby spring wheat contract.

Separately, the exchanges also announced increases in margins. The CBOT increased margin for wheat from $2,025 to $3,038 for specs and from $1,500 to $2,250 for hedges and maintenance. Kansas City raised its margins from $1875 to $4050 for specs and from $1500 to $3000 for hedges and maintenance.

Here are the new rules that go into effect Sunday night:

"Price limits will be set at $0.60 per bushel above or below the previous day's settlement price. Should two or more wheat futures contract months within a crop year (or the remaining contract month in a crop year) close at limit bid or limit offer, the daily price limits for all contract months on the respective exchange shall increase by 50 percent the next business day and an additional 50 percent each subsequent day two or more contract months within a crop year (or the remaining contract month in a crop year) close at limit bid or limit offer. Daily price limits shall revert back to $0.60 after no wheat futures contract month closes limit bid or limit offer for three consecutive business days. There shall be no price limits on the current month contract on or after the second business day pre-ceding the first day of the delivery month, except in Minneapolis where there are no price limits in the spot month on the first business day following options expiration.

The joint expansion of price limits is considered necessary due to the unprecedented price levels and volatility in recent market sessions and over the past year. Wheat futures on all three exchanges have closed at a limit move for successive sessions, and expanded limits will allow Wheat contracts to continue performing their price discovery and risk mitigation functions without being unduly constrained by limit price moves.

By acting in unison, the exchanges will help customers avoid additional risk resulting from distorted inter-market spread relationships."

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