CME Group has seen a growing number of Asia based clients participating in its Exchange traded Agriculture markets, particularly its benchmark Soybean Meal, Soybean Oil, Corn, Soybean, and Wheat futures markets. This demand to manage price risk by trading CME Group Exchange based contracts from Asia has boosted trading volumes during the Asia trading day.

Strong growth for Corn and Soybean futures

Corn and Soybean futures are the two largest markets and have benefitted significantly from the growth in Asia hours (defined as 8:00 a.m. to 8:00 p.m. Singapore time) volumes.  Average daily volume (ADV) in Corn futures during Asia hours reached 43,000 lots per day in the first three quarter of 2022, a CAGR of 11% from 2012.

A similar picture emerged in Soybean futures with ADV during Asia hours growing from 21,000 lots 10 years ago to 34,000 lots between January and September of this year. Other CME Group benchmarks like Wheat, Soybean Meal, and Soybean Oil futures have also seen a greater depth of liquidity during the Asia trading day. In aggregate, total CME Group Agriculture futures volumes across these five key products averaged 126,000 lots, which is about 15% of the global volume, compared to 68,000 lots and 9% a decade ago.

Chart 1: Volumes remain robust during Asia hours

The volume increase during Asia hours partly reflects the growing level of imports, most notably from the Americas. Commercial hedgers have expressed a preference to be able to manage price risk for these trade flows during the Asia trading day, but a lack of liquidity made doing so a challenge. The higher trading volumes and tighter traded markets in the Asia day has made greater participation possible from the region. 

Heightened volatility in the markets has also had a positive effect on trading volumes during Asia hours.

Chart 2: Volatilities lead to price risks

When looking at activities by hour during Asia time zone, trading tends to concentrate at around 08:00 hour Singapore time when the CME Globex electronic trading platform opens for trade.1 Higher volumes have also been seen during the Asia afternoon and the start of the European morning with a higher number of firms participating in trading. In general, there are continuous activities observed throughout the Asia business day and volume averaged more than 10,000 lots per hour during this period, based on Exchange data for the first three quarters of 2022.

Chart 3: Strong activities throughout Asia trading hours (Singapore time)

Competitive bid/ask price spread boosts volumes

To further examine current market liquidity during Asia hours, we have measured the best bid/ask spread and quantity of five active Agricultural futures at CME Group – CBOT Corn, Wheat, Soybean, Soybean Meal, and Soybean Oil futures. The spread represents the difference between the bid price and the ask price in the market which has a direct impact on participants’ trading cost. In addition, the bid/ask quantity measures the size of trades needed to move the futures price. The bid/ask spread and quantity are effective measures of market liquidity and traders use these to determine the types of trading strategies they are going to implement.

Table 1 below shows the bid/ask spread by hour of the most active contract month in each market during the month of September 2022. The spread is expressed in number of minimum price fluctuations (ticks) and represents the difference in the best bid price and best ask price, also known as top-of-book bid/ask spread, in the central limit orderbook on CME Globex. For all five Agriculture futures markets, competitive bid/ask spreads are observed during Asia trading hours. 

Corn futures exhibit the tightest overall bid/ask spreads for the observed period followed by Soybean, Soybean Meal, Wheat, and Soybean Oil futures. Depending on the hour, the corn bid/ask spread was as narrow as 1.04 ticks and as wide as 1.20 ticks, while the whole day average was at 1.12 ticks. The spreads during Asia trading hours averaged 1.16 ticks and was just 8% wider than the average spread observed during U.S. trading hours, which was 1.11 ticks.

On the other hand, Soybean Oil futures shows the largest bid/ask spreads compared to its peer product. The hourly top-of-book spread observed during U.S. hours was 2.06 ticks; Asia hours averaged 3.07 ticks. While the 3.07 tick Asia hours spread for Soybean Oil futures may seem much wider when compared to other markets, keep in mind that the Soybean Oil futures trade in a much smaller tick size in relation to price level. The 3.07 tick-wide spread represents about 0.041% of the contract value at current prices. In the case of Corn futures, the Asia hour top-of-book spread of 1.16 ticks translates into roughly 0.043% of the current price level. In other words, the bid/ask spread observed in Soybean Oil futures is as competitive as other markets when taking into account price levels and tick sizes.2

Table 1. Average of best bid/ask spread (ticks)

Hour Starting (Singapore Time)

Corn

Soybean

Wheat

Soybean Meal

Soybean Oil

0:00

1.04

1.21

1.34

1.34

1.93

1:00

1.04

1.18

1.31

1.33

1.88

2:00

1.06

1.20

1.37

1.41

1.88

8:00

1.18

1.65

2.27

1.88

3.13

9:00

1.15

1.68

2.27

1.85

3.42

10:00

1.13

1.64

2.30

1.79

3.13

11:00

1.14

1.65

2.22

1.80

3.35

12:00

1.09

1.56

2.14

1.72

3.15

13:00

1.09

1.57

2.15

1.65

3.08

14:00

1.17

1.63

2.31

1.82

3.07

15:00

1.18

1.60

2.20

1.74

2.93

16:00

1.17

1.60

2.21

1.67

2.91

17:00

1.20

1.59

2.15

1.59

2.82

18:00

1.18

1.57

2.08

1.55

2.96

19:00

1.18

1.55

2.09

1.63

2.84

20:00

1.20

1.52

2.05

1.58

2.54

21:00

1.04

1.29

1.43

1.45

2.19

22:00

1.04

1.24

1.34

1.37

2.07

23:00

1.04

1.22

1.35

1.33

1.96

Asia hours Average

1.16

1.61

2.20

1.72

3.07

All hours Average

1.12

1.48

1.92

1.61

2.70

Source: CME Group

Asia hour bid/ask order quantity aligning closer to regular trading hour

The average bid/ask order quantity is also robust. Table 2 below shows the bid/ask quantity by hour of the most active contract month in each market during the month of September 2022. It measures the average top-of-book bid and ask quantity in number of contracts on CME Globex. Typical order quantities observed during Asia hours remain comparable to the quantities seen outside of Asia hours.

In the Corn futures market, the average order quantity measured across the entire trading day was 26.24 lots. By comparison, the average order quantity during Asia hours was 19.13 lots. In other products like Soybean futures, the average bid/ask quantity during Asia hours was 5.04 lots compared to an all-hour average of 6.80 lots.

Interestingly, the average bid/ask quantity for Soybean Oil futures during Asia hours was 2.64 lots, which is smaller than the other markets such as corn. However, the soybean oil is a smaller physical market when measured in futures lot size equivalents3 and this may account for the smaller bid/ask quantities that are seen in the Exchange futures market. According to USDA statistics4, the U.S. produces about 14 billion bushels of corn per annum, which equals to 2.8 million lots of Corn futures. On the other hand, soybean oil annual production in the U.S. is around 11 million metric tons, which translates to about 400,000 Soybean Oil futures contracts. The difference in order quantity between Corn and Soybean Oil futures therefore is less pronounced when considering the size of underlying physical markets.

Table 2. Average of best bid/ask quantity (lots)

Hour Starting (Singapore Time)

Corn

Soybean

Wheat

Soybean Meal

Soybean Oil

0:00

38.31

9.84

6.16

7.05

3.31

1:00

42.71

10.91

7.23

8.00

3.41

2:00

62.35

14.55

8.46

8.93

4.33

8:00

18.57

5.30

3.81

4.30

2.72

9:00

18.61

5.71

3.67

3.82

2.49

10:00

17.11

4.97

3.40

4.03

2.38

11:00

18.18

4.92

3.70

3.78

2.45

12:00

31.93

5.15

5.51

4.58

2.79

13:00

20.55

5.92

4.64

5.39

2.83

14:00

17.96

5.42

4.12

4.18

2.72

15:00

17.14

4.99

4.76

4.46

2.71

16:00

17.15

4.27

4.03

4.49

2.50

17:00

16.67

4.30

4.34

4.52

2.74

18:00

17.69

4.59

3.88

4.51

2.59

19:00

17.96

4.91

3.83

4.60

2.73

20:00

19.80

5.33

3.93

4.41

2.72

21:00

31.68

9.00

5.85

5.58

2.91

22:00

37.26

9.85

6.44

6.40

2.90

23:00

36.91

9.25

6.21

6.87

3.08

Asia hours Average

19.13

5.04

4.14

4.39

2.64

All hours Average

26.24

6.80

4.95

5.26

2.86

Source: CME Group

Conclusion

The depth of Asia hours liquidity has improved in CME Group Corn, Soybean, Wheat, Soybean Meal, and Soybean Oil futures significantly. Now consistent futures trading volumes can be seen during the Asia time zone at competitive bid/ask spreads rather than relying on the U.S. traded markets to execute traded volumes. This deepening in liquidity provides a platform for clients operating in Asia time zone to better manage price risk. Among these five benchmark futures contracts, clients may use specific markets as they see fit to manage their risks, or a combination of multiple products for a broader exposure to Agricultural markets.

Sources

  1. CME Globex open hours: Sunday – Friday: 7:00 p.m. – 7:45 a.m. CT and Monday – Friday: 8:30 a.m. – 1:20 p.m. CT
  2. Currently price of Corn futures is at about $6.80 dollars per bushel and the minimum price fluctuation of $0.0025 is about 0.037% of the price level. Soybean Oil price is at about $0.75 dollars per pound and the minimum price fluctuation of $0.0001 is about 0.013% of the price level.
  3. The contract size is 5,000 bushels for corn and 60,000 pounds for soybean oil.
  4. https://www.nass.usda.gov/Charts_and_Maps/Field_Crops/cornprod.php
    https://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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