CME Group Inc., the Chicago-based futures exchange operator, posted record quarterly revenue and trading volume, though its agricultural markets growth slowed as a year-long commodities boom lost momentum amid global economic turmoil.
Trading CME’s agricultural futures and options averaged 1.03 million contracts a day during the quarter, up 9.5 percent from 941,000 a day during the same period in 2010, the company said in a Nov. 1 statement. Still, that marked a pullback from the second quarter, when agricultural trading soared 36 percent to 1.16 million contracts a day, a record for any quarter.
Third-quarter agricultural trading growth was the second-slowest among CME’s six business lines. Trading in contracts based on the Standard & Poor’s 500 index and other equity products surged 44 percent, while interest rate trading rose 30 percent, CME said.
Grain futures joined crude oil and other markets in a September nosedive as Europe’s debt crisis stirred concern the global economy was headed toward a recession that could depress demand for many commodities. Hedge funds and other speculators slashed bullish bets in corn futures and other markets amid a broader shift toward less-risky investments, traders and analysts said.
“The overall world economic situation and the economics here played a big role in this,” said Jack Scoville, an analyst with Price Futures Group in Chicago. “People just felt like taking less risk, so the speculative buying dried up and trends began to weaken.”
In CME corn futures, the combined position held by managed money and swap dealers, two of the largest categories of speculators tracked by regulators, last month dropped to the lowest level since April 2009, according to AgTraderTalk LLC.
Contributing to recent Chicago futures declines, Scoville said, is an outlook for stronger global grain supplies as Brazil, Argentina and others increase production, reducing demand for U.S. crops. Last month, the U.S. Department of Agriculture boosted its estimate for 2012 global corn stockpiles by nearly 5 percent from a previous forecast, to 123.2 million metric tons.
“A lot of people have been talking about less demand overall” for U.S. agriculture, Scoville said. “There is better production around the world, so the most compelling story, that the world is short, is somewhat mitigated.”
Agricultural trading is still up sharply this year as corn, cattle and hog futures rallied to records amid shrinking supplies, crop shortfalls and growing demand. CME milk futures also touched an all-time high.
“Overall, commodities volume remained impressive during the quarter,” Craig Donohue, CME’s chief executive officer, said in a conference call following the release of financial results.
While CME said profit rose 29 percent during the third quarter, better than many analysts predicted, the company’s shares were down more than 7 percent in afternoon trading Nov. 1. The share decline partly reflected the bankruptcy of MF Global Ltd., a major broker and clearing member at CME. MF Global’s bankruptcy filing Oct. 31 raised questions whether CME may be responsible for any losses incurred by the trading firm’s customers.
Soon after the bankruptcy filing, CME said it would no longer recognize MF Global as a clearing member and barred the company’s brokers from the trading floor.
CME still reaped a trading windfall this year as fears Greece would default on its debt obligations contributed to volatile global markets, boosting demand for contracts based on Treasury bonds and notes. Wall Street banks and others use CME contracts such as Eurodollars to speculate and protect against adverse market moves.
During the quarter ended Sept. 30, CME had net income of $316.1 million, up from $244.3 million in the same period a year earlier, the company said in the statement. Revenue totaled $874.2 million, up 19 percent.
Overall, CME trading volume averaged 14.7 million contracts a day during the quarter, up 27 percent from a year earlier. About 85 percent of CME volume was conducted electronically, with the rest executed through traditional “open outcry” in the exchange’s trading pits. Agricultural trading accounts for about 7 percent of CME’s total volume.
CME, which bought the Chicago Board of Trade for $12 billion in 2007, generates revenue primarily through transaction and clearing fees charged to brokers, banks and other customers. During the third quarter, the cost to buy and sell an agricultural contract averaged $1.26, about the same as a year earlier.