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.
Last week, 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 lead 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 re-sell 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?"
But big international firms say the longer hours have meant increased staffing costs, more price risk with thinner volumes, and more clearing costs.
"I get the fact that they want it accessible to the entire world. But if you're open from 6 p.m. to 6 a.m., that's more than enough coverage for Asia. And Europe, the later close only puts a greater strain on them because they need to follow it later into their evening," said one export trader with a multinational company who wants shorter hours.
A trader from an international brokerage summed up the current debate this way: "If Cargill, ADM, and Dreyfus don't like the longer hours, we're not going to have longer hours."
Spokesmen for Cargill, ADM and Louis Dreyfus could not be reached or declined to comment on the debate of trading hours.
The National Grain and Feed Association, the largest U.S. grain handlers trade group representing more than 1,000 grain handlers and processors of all sizes, said there was a wide diversity of opinion among its members and it did not yet have a formal recommendation on hours.
"When you consider all the costs and the different tradeoffs the best solution may not be exactly what all country elevators want and not exactly what firms staffing longer hours would like," said Diana Klemme, vice president of Grain Services Corp and a member of NGFA's risk management committee.
The CME, trying to accommodate all market players, remains caught in the middle. It's a familiar place.
Grain traders have complained for years that CME is losing grain hedgers by catering to Wall Street banks and hedge funds who drive speculative volumes but disrupt hedging.
CME, which has reaped higher trading fees from the volumes, says it is must fend off competition from ICE.
Grain traders don't buy that argument. Open interest in ICE's flagship corn contract has fallen 65 percent to fewer than 800 contracts in the past two months. Open interest in CBOT corn, meanwhile, has risen to over 1.2 million contracts.
Scott Docherty, general manager of Top Flight Grain, a cooperative that buys some 30 million bushels a year from Illinois farmers, sympathizes with CME's attempt to please all parties.
"What concerns me is they haven't even given it a full year to look at what their changes have done for the customers," Docherty said.