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BRIAN HOOPS

By Staff | May 30, 2014

CME Group should temporarily suspend open-outcry trading if its electronic trading platform crashes and reopen for a brief after-hours session if the system is restored later that day, a grain industry group said.

The call follows last month’s worst-ever outage on the world’s top agricultural commodities exchange.

CME should also develop emergency procedures in case of any future outages of its Globex platform, which handles 95 percent of trading volume in agricultural futures, the National Grain and Feed Association said in a letter to the exchange operator dated May 12 and posted to its website.

A Globex outage in several of CME’s agricultural futures markets on April 8 channeled a heavy volume of orders to its depleted open-outcry trading “pits” near the close of trading, typically a very busy point of the day.

“Many firms have transitioned their systems to the electronic platform and are not prepared to try to execute large order volumes through the pits, which in turn are no longer prepared to handle such volume,” MJ Anderson, chairman of NGFA’s risk management committee, said in the letter. “By suspending trading, all participants will be ensured fair access to markets, and confusion as to positions will be limited,” he said.

The NGFA’s recommendations echoed those of many traders following the April 8 outage, which stopped electronic trading in 31 agricultural markets and which CME blamed on a technical fault.

CME pushed back against calls for it to close open-outcry trading if its electronic platform fails, saying that most traders have access to the pits.

“To close down the floor because the electronic platform closed down, I don’t know why we would do that, unless there was a circumstance that warranted closing all the markets,” Executive Chairman Terry Duffy told reporters following the company’s annual meeting.

“As long as we’re willing to offer a vibrant two options, I think that’s the smart thing for us to do,” Duffy said about keeping the pits open during an electronic outage. “If we felt that nobody had access to the marketplace, then we’d have to re-evaluate that situation.

“To my knowledge clearing firms work collaboratively together on give-up situations.”

A Reuters analysis of CME trading data showed that pit traders largely succeeded in replacing screen trade in some markets.

CORN ANALYSIS

Corn closed the week 7 cents lower. Last week, private exporters did not announce any private sales.

Weekly export sales of corn showed a total of 22.5 million bushels.

The weekly crop progress report showed the U.S. corn plantings advanced to 73 percent completed versus average of 76 percent; emergence is now 34 percent versus average of 42 percent.

The slow emergence is supportive. Weather forecasts are improving and long-range forecasts call for well-above-normal precipitation during June.

There will be period of very hot and dry weather in June and July, which producers are advised to use as marketing opportunities.

With 4 million less corn acres this year, the market will be more sensitive this year to weather issues should they arise.

Commercials will be using this break in prices to build long positions in an attempt to benefit from a weather event.

Producers can look at out-of-the-money call options for insurance as a cheap way to benefit from a weather-related rally if it occurs.

Buying out-of-the-money calls on price weakness during the month of May can pay dividends on a weather-inspired rally during June and or July.

Strategy and outlook: Producers are 100 percent sold of 2013/14 crop. Producers are 25 percent sold of the 2014/15 crop and own 480 puts on 50 percent of the crop.

Buy out-of-the-money December calls on 25 percent of sales if December corn hits $4.66.

SOYBEANS ANALYSIS

Soybeans closed the week 51 cents higher.

Last week, private exporters announced a sale of 111,000 metric tons of optional origin soybeans sold to China; 240,000 mt of U.S. soybeans sold to China and 201,000 mt of soybeans sold to an unknown destination.

All sales are for the 2014/15 marketing year.

Weekly export sales of soybeans showed 6 mb for old crop and 16.8 mb for new crop sales.

In the weekly crop progress report, U.S. soybean seedings are now 33 percent, behind the average pace of 38 percent; while emergence is 9 percent with the average at 11 percent.

Many producers are surprised soybeans are hitting fresh contract highs especially when the market is anticipating more than double the ending stocks this growing season compared to last year.

No doubt the market knows that if $15 soybeans are attracting buying interest, then November soybeans that are at $12.50 are too cheap in comparison.

Traders also know that USDA is forecasting record yields and a perfect growing season. While soybean producers intend to seed more acres this year than the previous year, the old trading adage of its not what you plant, its what you grow applies this year to soybeans.

Strategy and outlook: Producers are 100 percent sold of the 2013/14 crop. Producers are 25 percent sold of 2014/15 production. Sell another 10 percent at $13.10 against March 2015.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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