UPDATE 3-After protest, CME grains set for nearly non-stop trade

* CME says 21-hour grain trade will start on Sunday night

* Grains join ranks of oil, currencies in extended trading

* Farmers may struggle to adapt to change (Recasts, updates throughout)

By Tom Polansek

CHICAGO, May 18 (Reuters) - CME Group won approval on Friday to expand trading hours for its grain markets, thrusting reluctant corn farmers and wheat brokers into the high-octane world of data-driven volatility and near round-the-clock trade.

In one of its most contentious moves since it bought the historic Chicago Board of Trade five years ago, the CME will start trading grain and oilseed futures and options for a continuous 21 hours a day from Sunday night, up from the current two-part 17-hour trading cycle.

The Commodity Futures Trading Commission approved the new hours on Friday after a two-week scramble by the CME to secure both regulatory clearance and customers' blessings. The CME reduced its plan from 22 hours in a hasty concession to agricultural industry groups that worried the late hours would drive up their costs.

While the longer hours appeared all but inevitable after the rival IntercontinentalExchange announced plans to launch its own grain contracts last month, it will still be a wrenching step in the evolution of the Chicago-based market, which has thrived for 160 years catering to Midwestern farmers and small traders.

Now, however, its growth is increasingly dependent upon the financial investors and big-money hedge funds who see grains as an asset class as they diversify their portfolios.

"Agriculture trading platforms are now catching up with what's been going on in the precious metals and the energies for a while," said Frayne Olson, who works with farmers and agribusinesses as a marketing specialist for North Dakota State University.

Oil traders have contended with volatile weekly inventory data released in the middle of trading for a decade; foreign exchange and Treasury brokers have long been required to digest growth data and jobless figures while punching trades.

SUNDAY SHIFT

Grain elevator managers, merchandisers and processors who resisted the increase in trading hours will now have to adapt to longer days to accommodate demand for expanded access to the markets, particularly from hedge funds and large traders.

Grains traders, including hedge funds and farmers, will be able to start trading at 5 p.m. Central (1900 GMT) on Sunday, instead of 6 p.m. Central. The markets will then stay open continuously until 2 p.m. Central on Monday before shutting for three hours and resuming the cycle again through Friday.

CME proposed the expanded schedule to the CFTC after grain firms complained an original plan to shut the markets from 4 p.m. to 6 p.m. CDT, would not give dealers enough time in the evening to complete back-office operations before the next trading session begins.

The one-hour reduction mollified some critics, but did not answer one of the chief complaints: The exchange may be stoking volatility and favoring computer-driven traders by keeping markets open through 7:30 a.m. Central (1330 GMT), when the U.S. Department of Agriculture releases major monthly crop reports.

USDA officials have said they are considering whether to change the time that reports are released.

The grain industry could struggle to adapt to the extended trading cycle more than other sectors did because it has "many more small players" like individual farmers and cooperatives who use the markets to hedge, Olson said. They have complained it will be difficult to monitor the markets for so many hours.

"The speculative community, they're used to this," Olson said.

Objections to expanded trading hours from the grain industry raise questions about whether futures exchanges are "being true to their originally intended purposes of price discovery and risk management," said CFTC Commissioner Bart Chilton, who noted he "reluctantly supported" CME's revised proposal.

CBOT formalized grain trading with the development of futures contracts in 1865.

Brokers on Friday prepared for the start of expanded trading on Sunday by notifying their clients, including farmers in far-flung rural areas, of the change in hours.

Jack Scoville, a broker and vice president for Price Futures Group in Chicago, sent emails to his customers about the last-minute announcement.

"Hopefully they'll read their emails between now and Sunday night," he said. (Reporting by Tom Polansek; Editing by Dale Hudson, Bob Burgdorfer, David Gregorio and Leslie Gevirtz)