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Hog futures trading limits raised as pig virus fuels volatility

CME Group Inc said on Thursday (27 February) it plans to increase the daily trading limits for its lean hog futures in April and then adjust them annually because of heightened volatility linked to the outbreak of ASF in China.

28 February 2020, at 9:34am

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

The outbreak has also reordered meat trading around the world and prompted major US 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 13 April, CME Group will raise the daily limit to 3.75 cents per pound from 3 cents, according to a separate notice sent to customers. 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 percent, in 2019, according to CME Group. This year, the market settled at its daily limit on four days as of 7 February, 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 US Commodity Futures Trading Commission.