<b>By ANN HINCH<br>
Assistant Editor</b> </p><p>

MINNEAPOLIS, Minn. — One side effect of the volatile commodities market took effect last week – a decision by three United States grain exchanges to concurrently raise their daily limits on the trading of wheat and mini-sized wheat futures and options.<br>
Beginning Feb. 11, the Minneapolis Grain Exchange (MGEX), the Chicago Board of Trade (CBOT) and the Kansas City Board of Trade (KCBT) all raised their daily movement limits on wheat contracts from 30-60 cents. The volume of futures contracts exchanged hit a record high for KCBT and CBOT that day – with approximately 50,000, compared to the usual 16,000-20,000 daily for KCBT, according to Vice President of Marketing Sheila Summers, and 277,055 futures and options contracts traded at CBOT, compared to the 2008 year-to-date daily average of 121,665, according to CBOT spokeswoman Mary Haffenberg.<br>
MGEX Director of Marketing Nancy Krull said she didn’t want to judge volume since the rule change since it was so recent, but so far, the 2008 average daily volume of wheat futures contracts is 9,568, compared to 7,278 for last year.<br>
“We’re allowing the market to do its job,” she explained of the limit increase, noting it pertains to how far the market can move in either direction – up, as has been the steady progression of late, or down.<br>
On Feb. 7, the three announced an increase to only 40 cents, but had changed that by the following day to 60 cents instead. Representatives of the three exchanges had additional discussion in the interim, Krull said, and determined a 10-cent change was not drastic enough to allow the volatile market to find a level.<br>
“Probably last year, we would’ve not thought there was a reason to increase (the limit),” Summers said, adding the wheat futures met their trading limits only a few times in 2007.<br>
Less than two months into 2008, however – as of Feb. 12 – KCBT had already closed at its limit for 13 days, locking “day after day after day” just before this limit expansion took effect. She said MGEX had hit its daily tether even more often this year.<br>
Additional allowances<br>

A trading limit determines how far a commodity price can rise or fall in one day. When she began with KCBT 12 years ago, Summers said the wheat daily limit was 25 cents and KCBT changed it to 30 cents in October 2000. Krull said MGEX records indicate it changed its daily limit from 20 to 30 cents sometime in 1999.<br>
Krull and Summers said the exchanges are changing the limits “to ensure market participation and encourage price discovery and risk mitigation.” Simply put, by loosening the tether on how far the market can move in either direction each day, the exchanges hope wheat will settle sooner on a stable price range.<br>
Additionally, if at least two contract months’ futures in the same crop year reach the limit in one day at any one exchange, that exchange will raise the limit by another 50 percent the following day. Futures contracts for wheat are traded for the five delivery months of March, May, July, September and December, but when a “crop year” begins varies among exchanges.<br>
Example: If an exchange market had closed on wheat at $10 per bushel on Feb. 8 and at least two of the monthly futures had moved to the end of the new 60-cent limit on Feb. 11 – either $10.60 or $9.40 (it can be all up, all down or a mix) – the Feb. 12 trading day would have had a new limit of 90 cents (an extra 30 cents, or 50 percent over the previous day’s limit). This means if the wheat futures market had closed Feb. 11 at, say, $10.60, the range of movement for the end of Feb. 12 would have been $9.70-$11.50.<br>
To continue this example: If Feb. 12 had seen at least two monthly futures move to either limit (or one of each), the trading range on Feb. 13 would have gone up another 50 percent, or $1.35 in either direction. Hypothetically, presuming it had closed down to $9.70, for example, on Feb. 13 the range would have expanded to $8.35-$11.05.<br>
And, so on and so forth, until a period of three consecutive days is reached where at least two monthly futures do not close those days’ limit. Once that happens, on the fourth day the limit would drop back to 60 cents and the cycle would start over again.
Despite this mutual decision on the limit change, each exchange operates independently of the other two, so it’s probable each may have a different limit on any given day, depending on how its particular futures market fared the previous day.<br>
MGEX trades spring wheat, CBOT trades in soft red winter wheat and KCBT deals in hard red winter wheat. These types are generally used, respectively, to make high-protein bread, pastas, cereals and bagels; cookies and crackers; and pan bread (the type mass-produced for supermarkets).