In time, higher volume after CME cuts grain futures hours

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CME Group's plan to scale back its trading day for grain contracts will likely provide a boost to volume and liquidity, but traders said it will take time for investors to return to the market.

"I think if they compress the hours again ... it serves the needs of the customers that actually use this market," said Chris Robinson, senior trader at Top Third Ag Marketing. "I think it is going to be good for the markets."

CME announced this month that it plans to reduce the trading cycle for the grain markets on its Chicago Board of Trade, which are used to set food prices around the world, to 17.5 hours a day from 21 hours a day starting on April 8.

The exchange operator lengthened its trading day to 21 hours in May 2012 to compete with arch-rival IntercontinentalExchange , which last year launched look-alike grain contracts and nearly round-the-clock trading.

The new schedule irked many long-time customers who complained that liquidity quickly dried up as trades were spread out across the long day. Overall volume also dropped off as investors cut back their exposure to the volatile market.

"It was kind of out of control," said Jason Britt, president of Central States Commodities. "I had some long-time customers ... who really scaled their volumes back because you did not know if you were going to wake up in the middle of the night and see that beans were down 30 or 40 cents."

CME, which surveyed its customers about the effects of the expanded trading session, said earlier this week it had "quantitative evidence" that supported the customer complaints.

So far this year, CBOT corn, soy and wheat futures volume has totaled 3.16 million contracts, down 4.6 percent from the same period in 2012.

Volume for CBOT corn futures, the heaviest traded agricultural contract, have fallen the most, dropping 14 percent in the first three months of 2013 compared to a year earlier.

"You make a knee-jerk reaction to things that may or may not be an issue, you open Pandora's box," said Garrett Toay, risk management consultant at Toay Commodities Futures Group in Des Moines, Iowa.

Traders said that many investors will be carefully monitoring the liquidity pools, particularly at the opening and closing when activity is the heaviest, before deciding if they want to bring business back to the grains market.

Investors also will test the waters on days when there is big fundamental news, such as a crop conditions report, and heavy trading is expected.

CME's willingness to change will boost the confidence that investors have in the grains market, which could also make some investors more willing to come back, Central States' Britt said.



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