CME to raise hog futures trading limits as swine fever fuels volatility

New daily limit of 3.75 U.S. cents proposed for mid-April

Chicago | Reuters — CME Group said Thursday it plans to increase daily trading limits for its lean hog futures in April, then adjust them annually because of heightened volatility linked to the outbreak of a fatal pig disease in China.

The spread of African swine fever in China, the world’s biggest pork consumer, has fueled swings in futures prices by raising expectations for increased Chinese demand for U.S. pork. Uncertainty persists about the size and timing of sales, after Beijing agreed to buy more U.S. agricultural goods as part of an interim trade deal signed in January.

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The outbreak has also reordered meat trading around the world and prompted major U.S. pork producers to remove a growth drug banned by China from their supply chains. African swine fever has spread to Southeast Asia and Eastern Europe.

“The spread of African swine fever and the ongoing US/China trade war have combined to produce very high levels of volatility,” CME Group said in a memo this month.

Starting on April 13, CME Group will raise the daily limit to 3.75 cents/lb. from three cents, according to a separate notice sent to customers (all figures US$).

The limit will temporarily expand to 5.5 cents if any of the front eight contract months settle at the initial limit. Currently, limits temporarily expand to 4.5 cents if any of the front three contract months settle at the initial limit.

The limits will be reset annually on the first trading day in September, based on previous daily settlement prices, according to the notice. The reset limit will remain in effect through the last trading day in August of the next year.

Hog futures settled at their daily price limit 31 times, or 14 per cent, in 2019, according to CME Group. This year, the market settled at its daily limit on four days as of Feb. 7, the exchange said in its memo.

CME Group wants to avoid too many settlements at the daily limit because they inhibit price discovery and prevent traders from executing orders. The changes would go into effect upon approval from the U.S. Commodity Futures Trading Commission.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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