How Ukraine Changed CME Price Limits

CME Exec Details How Volatility in Wheat Market Led to Adjusted Approach to Daily Price Limits

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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CFTC held a meeting Wednesday in Washington, D.C., with the commission's 35-member Agricultural Advisory Committee. Among the presentations was one by CME about price volatility in grain markets, especially wheat, caused by the war in Ukraine. (DTN photo by Chris Clayton)

WASHINGTON (DTN) -- The managing director for agricultural products at the CME told the Agricultural Advisory Committee for the Commodity Futures Trading Commission on Wednesday how Russia's invasion of Ukraine forced CME to immediately reevaluate how the trading board looks at price limits for commodity markets.

CFTC annually brings together a group of 35 advisers from across agricultural markets to highlight trends or market concerns for commodities. Since the group last met in June 2021, "Significant volatility has remained a fixture in many of the agricultural and related markets," said Rostin Behnam, chairman of the CFTC, "due to the ongoing recovery as well as growing impacts of extreme weather events and geopolitics."

Tim Andriesen, managing director for agricultural products at CME, talked to the CFTC committee about price limits for grain markets and how that has changed since Russia invaded Ukraine last February. Before the war, CME had set on examining how grain prices moved every six months, typically at planting season and harvest, to determine limits, which are often set at roughly 7% of the contract price.

Wheat markets began hitting limit up when the war in Ukraine started. Over the next week, wheat futures continued to hit limits, leading CME to quickly move to expand the trading limits on the wheat contract. Andriesen called it "an unprecedented event with significant market impact." Within a week, CME went to CFTC to change wheat contracts. That's normally a 45-day process, but the CFTC quickly approved the change.

The situation with wheat contracts prompted CME to expand price limits on the wheat contract when one of the contract months closes on the limit price two days in a row, instead of two contracts settling on the limit.

The initial and expanded contract limits can keep going up if the daily settlement lands on the expanded limit for two consecutive days. The price limit is then bumped up 50%. For instance, the wheat contract within a week went from a 50-cent limit to 75 cents. After two consecutive trading days ending 75 cents higher, the limit was moved to $1.12.

Andriesen told the committee volatility came into play in a way that was unexpected. Andriesen said this type of repeated limit-up moves like what happened with the wheat contract are rare, having only occurred twice in the last 20 years.

"This is not something we would expect to happen very often," Andriesen said.

At the time last February and March, Andriesen said there were traders who wanted limits taken off the wheat contracts altogether while smaller traders found themselves, "having to go to the bank every day to meet margin calls," and they wanted limits tightened.

Yet, the change in pricing and limits that CME applied to wheat will now be implemented by CME across all ag products. If a contract hits limit up two days in a row, the base limit will move higher.

"Where the prices are, these are the right limits to get the right outcomes in the marketplace," Andriesen said. He added how the conversations about assessing contract limits have changed at CME. "There have really been discussions over whether we should change the limit every single day." That is how CME assesses lumber prices, for instance.


Cynthia Nickerson, deputy chief economist at USDA, talked about how drought has affected yields for crops such as wheat and cotton, as well as a smaller cattle herd. Looking at the November World Agricultural Supply Estimates (WASDE), Nickerson pointed to the projected prices for crops for the marketing year.

"Essentially what we are seeing is strength across the board," Nickerson said.

USDA will release the December WASDE report on Friday.

Nickerson pointed to wheat prices, now forecast at a record $9.20 a bushel for the 2022-23 crop, driven heavily by the war in Ukraine and the agreement between Russia and Ukraine to allow grain exports out of the Black Sea region. Nickerson said that agreement affects how wheat prices move.

"There is just a huge amount of uncertainty about the stability of that agreement, contributing to the volatility," Nickerson said.

Beyond the war and Russia's role as a global fertilizer supplier, Nickerson also raised concerns about China's COVID-19 lockdowns.

"China's COVID restrictions have had a big impact on demand, as we all know, and that is one of the biggest risks going forward," Nickerson said.

This plays into the cotton market and textile demand, which will see more volatility due to those lockdowns in China.

Almost on cue Wednesday, Associated Press reported China was rolling back some of its lockdown and testing demands following protests in the country. China also reported that the impacts of lockdowns had reduced China's own exports as much as 8.7% in November, the sharpest decline in shipments since the pandemic began in February 2020.

Nickerson also pointed to China working to rebuild its swine herd after African swine fever, which could drive more demand for soybeans. She noted China is watching the progress of Brazil's soybean crop.

"If there are record crops in South America, China could buy from them," she said. But if drought again affects Brazil, then China will turn more to the U.S., Nickerson said.


Scott Herndon, president of Field to Market, also addressed the CFTC, highlighting how the agricultural sector is dealing with sustainability issues. Field to Market now has 170 different groups and businesses representing the agricultural supply chain. Field to Market has eight sustainability metrics in its program and also works to define issues such as regenerative agriculture.

"So, the interest in sustainability is very high," Herndon said.

Herndon explained how companies are partnering with each other to reduce tillage, increase cover crops and improve nutrient management as food and agribusiness companies look to lower their carbon footprints.

Farmers, however, are still waiting for more benefits from these efforts. A poll by Field to Market found 74% of farmers surveyed believe they should be paid for these efforts that provide public benefits, but only about 15% of those farmers reported receiving higher value for their practices. Herndon said more attention is needed to develop programs that will reward farmers for these practices.

Ed Elfman, a representative on the committee from the American Bankers Association, said banks are starting to look at how they should factor in sustainability efforts, and they do not want to see mandatory requirements placed on farmers.

Looking at other issues going forward, members of the committee pointed to the need to understand carbon credit contracts and the expectations on farmers. Another issue raised involves the effects of the expanding renewable diesel markets. That comment comes on the heels of another new soy crushing announcement in North Dakota.

See "Epitome Energy to Build Soy Crush Plant in Grand Forks, North Dakota" here:….

Also see "CME Announces Resetting of Price Limits for Grain, Oilseeds, Lumber" here:….

Chris Clayton can be reached at

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Chris Clayton