To ease volatility that has stemmed from the spread of African swine fever and ongoing trade negotiations with China, CME Group announced in a Feb. 27 filing that it is increasing the daily trading limits for its lean hog futures to 3.75 cents/lb. from the previous 3 cents/lb. From there, the limit will expand temporarily to 5.5 cents/lb. if any of the front eight contract months settle at the initial limit.

The limits increase will be implemented April 13 but will be reset annually on the first trading day in September, the firm said.

Currently, limits temporarily expand to 4.5 cents if any of the front three contract months settle at the initial limit. However, CME Group said African swine fever and the ongoing U.S.-China trade war have produced “very high levels of volatility” in the lean hog market. As a result, CME Group reported that the contract settled at the daily price limit ($3.00 or $4.50/cwt.) 31 times —14% of trading days — in 2019. Of those days, there were three instances where the contract settled at the expanded limit of $4.50/cwt.

“This volatility trend has continued into 2020, with four days of limit settlement as of Feb. 7, 2020,” the firm said. “Limit settlements can inhibit price discovery and can hinder market participants when entering, exiting and/or rolling positions.”

CME Group referenced a 2014 decision by the Chicago Board of Trade (CBOT) in which it implemented a variable price limit mechanism in its grain and oilseed markets to avoid frequency in limit settlements. “Since its implementation in the CBOT grain and oilseed markets, there has been a significant reduction of the number of days those markets have settled at the limit price,” the firm noted.