Trading volumes on the world's benchmark grain and livestock
markets soared as investors, allowed extended dealing hours, reacted to the US
drought – but the business did not spill over into live pit trading.
The CME Group, owner of exchanges including the Chicago Board
of Trade, said that trading volumes in its agricultural commodities futures and options
averaged 1.4m contracts per day last month, a jump of 46% on July last year.
The rise, in the first full month after electronic trading
hours were extended to 21, reflected the surge in interest in US corn and
soybean futures and options as drought fears sent yield expectations tumbling,
and prices to record highs.
"Customers turned to CME Group to manage their risk
associated with exceedingly dry and hot weather conditions in June and July," the
company said, noting record volumes in soybean and soymeal contracts.
However, volumes in overall open outcry trading continued
their long-term decline, falling 21% year-on-year to 1.05m, declining slightly
faster than in June despite the grains rally and an extra trading day last month
compared with July 2011.
Scream vs screen
The declining trend in pit trading looks set to continue, "as
volume shifts to deep and more liquid electronic markets", Richard Feltes, vice-president
of Chicago-based broker RJ O'Brien, said.
"More people are trading electronically at home, or on their
way into work, or around the globe."
A former Chicago floor trader, now a grains analyst, told
Agrimoney.com that the arrival of near-round-the-clock electronic dealing had reduced
the role of the pits in setting benchmark pricing levels, such as opening prices.
"You do not need someone to do market orders, to help you
through that difficult opening hour," the source said.
However, open outcry trading in options will "hang in there
longer than you think" given the ability of pit trading to match buyers and
sellers for what can be complex and quirky deals.
Mr Feltes added that the overall increase in Chicago trading
volumes was to be expected given the "most significant drought in 25 years,
when we already have low US corn stocks".
Agricultural commodities looked especially appealing to investors
given the weak returns that soft economic growth expectations were placing on
many other assets.
"A market that has a real fundamental catalyst for price
moves is going to attract a lot of interest," he said.
Phupinder Gill, the CME Group chief executive, said last week that "severe drought conditions in the Midwest, driving higher volatility, along with the expansion of the CBOT Grain and Oilseed trading hours on Globex had both
contributed to strong performance".
Separately on Thursday, the IntercontinentalExchange, which operates benchmark
contracts in many soft commodities besides in energy, said that the electronic grain
and oilseed contracts it set up as a challenge Chicago's dominance had traded
84,774 lots last month.
Last week, IntercontinentalExchange revealed that it is close its last trading pit, in options on futures in arabica coffee, raw sugar, cocoa, cotton and frozen concentrated orange juice.
These options will from October 22 be traded solely electronically.
has been an emphatic shift from floor to electronic execution in the options
market, and as a market operator we have an obligation to respond," Ice said.