CME ag trading slumped in late 2011 as commodity rally deflated

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Agriculture trading at CME Group Inc. hit a record in 2011 amid soaring prices for corn, cattle, hogs and milk, though business slumped late in the year as a commodity rally deflated and big broker MF Global Ltd. collapsed.

An average of 1.09 million agricultural commodity futures and options contracts changed hands each day at last year at CME, up 19 percent from 913,000 during 2010, the Chicago-based exchange operator said in a Jan. 4 statement. That’s the highest agricultural volume for any year since futures trading began in Chicago over 160 years ago.

Still, CME’s brisk growth over recent years slowed in the final months of 2011, partly because Europe’s debt crisis prompted speculators to slash bullish bets on grains, oil and other commodities. Additionally, ag volume fell following the Halloween bankruptcy filing by MF Global, once one of the top trading firms at CME.

“MF Global is the big factor in reduced volume,” said Scott Davis, president of Bullpen Trading, LLC, a Rochester, Minn., commodity advisor.

During the fourth quarter, CME agricultural trading averaged about 1 million contracts a day, down 6.5 percent from the same period a year earlier. That was the first year-over-year decline in quarterly agricultural volume since the third quarter of 2009.

CME’s overall trading, including futures based on interest rates and the Standard & Poor’s 500 index, fell 2.5 percent during the fourth quarter, to an average of 11.7 million contracts a day. Trading for the full year averaged 13.4 million contracts a day, up 9.8 percent from 2010 and a record.

The increase in agricultural trading last year reflected heightened market concerns over crop shortfalls and tight global grain supplies, as well as rising export demand for U.S. beef, pork and dairy products amid shrinking or static livestock herds.

Among specific markets, trading in CME corn futures averaged 313,511 contracts a day in 2011, up almost 14 percent from 2010. CME corn is the most actively-traded U.S. agricultural futures contract. Soybean futures trading averaged 179,142 contracts a day, up 23 percent.

Live cattle futures trading surged 20 percent, to an average of 53,701 contracts a day, and lean hog futures trading jumped 24 percent, to an average of 39,563 contracts a day. Class III milk futures, the most actively-traded CME dairy market, averaged 1,463 contracts a day, up 33 percent.

CME, which bought the Chicago Board of Trade for $12 billion in 2007, generates revenue mostly through transaction and clearing fees charged to brokers, banks and other customers. During the three months ending November, the cost to buy and sell an agricultural contract averaged $1.24.

Agriculture accounts for about 8 percent of CME’s total trading.

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