UPDATE 3-CBOT grain pits to open earlier on USDA report days

* Pit trading to start at 7:20 a.m. CDT on USDA report days

* Open-outcry cycle will start at 9:30 a.m. on other days

* Extended hours begin on June 12

* CME says it's considering adjusting pit settlement time

(Adds comments from CME in paragraph 4 and USDA in paragraph
15)

By Tom Polansek and Sam Nelson

CHICAGO, May 25 (Reuters) - The Chicago Board of Trade's
iconic grain trading pits will open for business more than two
hours earlier on mornings when the U.S. government issues
price-sensitive crop reports, CME Group said on Fri day,
aiming to appease floor traders after electronic hours were
expanded.

The massive exchange this week made the transition to nearly
non-stop electronic trading of commodities like corn, wheat and
soybeans in a bid to defend market share against rival
IntercontinentalExchange.

CME said the markets will keep their existing trading
schedule on days that the U.S Department of Agriculture does not
issue key crop reports, maintaining a 45-minute split between
the end of pit and electronic trading.

However, later in the day, a spokesman for the exchange said
CME was "still considering extending open-outcry hours" to 2
p.m. CDT from the current 1:15 p.m. close.

The increase in morning trading hours could ultimately be a
stop-gap measure for CME, as USDA is considering pushing back
the time that it releases crop reports in response to the
increase in electronic trading hours.

"They're trying to accommodate everybody," said Tom Uhlmann
an independent floor trader, about CME. "It's either open early
or have USDA change their release times.

CME, which owns the Chicago Board of Trade, the world's
largest grain exchange, said that starting on June 12 open
outcry trading will begin at 7:20 a.m. CDT ( 1220 GMT) o n days
that the USDA issues key crop reports, instead of at 9:30 a.m.
Trading will close as usual at 1:15 p.m.

Crop reports are released at 7:30 a.m.

"DEAL WITH THE CRAZINESS"

Options traders on the CBOT floor led the drive to expand
open-outcry hours so they would not lose volume to electronic
trading during USDA reports, which often roil markets. Most
options volume is executed in the pits.

CME increased electronic trading to 21 hours per session
from 17 hours on Monday after ICE launched lookalike grain and
soy contracts last week on a 22-hour basis.

As long as electronic trading is going to be open during
USDA reports, open-outcry options and futures pits also "need to
be there" to increase liquidity and reduce volatility, said
Jerry Gidel, chief feed grain analyst for Rice Dairy.

"The concept of having the other two entities there to help
the markets deal with the craziness, I'm in favor of it," he
said.

CME has had a piecemeal response to the challenge from ICE,
first proposing an expansion of electronic trading to 22 hours
and then settling on a revised 21-hour schedule after an outcry
from grain groups.

The change in CME's open-outcry hours may be a temporary
solution to floor traders' complaints as the USDA is considering
pushing back the release time for crop reports to mid or late
morning, when markets are more liquid, according to an industry
official who met with the agency on Thursday.

The USDA said on Friday it will gather input on whether to
change the time it releases crop reports.

PIT SETTLEMENT UNCHANGED

Many longtime market participants said they would still
prefer that all the markets stay shut when USDA reports are
released.

Gerald Corcoran, chief executive of R.J. O'Brien, the
largest independent U.S. futures brokerage, told regulators in a
letter this week that he supported starting pit trading at 7:20
a.m. to increase liquidity, except on USDA report days. He
advocated a pause in trading on report days to give traders time
to analyze the data.

Corcoran and others had lobbied CME to push back the close
of pit trading to 2 p.m. so that electronic and open-outcry
trading would end at the same time.

Since electronic trading increased, some merchandisers have
based cash grain prices off the newly implemented end of
electronic trading at 2 p.m., while others have based prices off
the open-outcry settlement at 1:15 p.m., causing confusion in
the markets.

CME announced a different change for the close of trading on
Friday, saying settlement prices as of June 25 will incorporate
activity from electronic trading and not just pit trading.

"Leaving the close at 1:15 is going to frustrate a lot of
people," said Mary Ann Kwiatkowski of Amber Trading, a veteran
floor trader and independent broker.

The CME spokesman said the exchange would continue to talk
to customers about the time that pit trading ends.

(Additional reporting by K.T. Arasu; Editing by David Gregorio)