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CME Says Variable-Storage Rates Help Price `Convergence' in Wheat Markets
The owner of the world’s largest futures market, CME Group Inc., said today that its variable- rate storage plan for wheat contracts has helped to encourage so-called convergence between cash prices and futures.
David Lehman, a director in the executive division of CME Group, told a subcommittee of the U.S. Commodity Futures Trading Commission that cash prices are more closely matching futures prices as they approach expiration. The concept of variable storage prices, and last month’s announcement that rates would rise 3 cents to 8 cents a bushel beginning July 18, don’t appear to be curbing investor interest in wheat, he said.
“You can see all of the cash-price series moving nicely toward futures,” Lehman said in a teleconference meeting of the subcommittee.
Groups including the National Farmers Union have complained that commodity markets have been made more volatile by increased speculation from funds created by banks including Goldman Sachs Group Inc. The CME plan allows it to change storage rates based on prices among nearby contracts, encouraging farmers to store wheat longer, which would lift cash prices.
Wheat traded on the Chicago Board of Trade rose 77 percent in 2007 and reached a record in February 2008, before a collapse in commodities sent the grain down 31 percent for 2008. Prices fell another 11 percent last year and are up 10 percent this year.
Futures for September delivery advanced 37.25 cents, or 6.7 percent, to $5.9625 a bushel on the CBOT today on speculation that drought in Russia will damage crops in the world’s fourth- largest exporter. The gain was the most in 19 months, and the close was the highest since November.
Review in August
The conference call was organized by a subcommittee of the CFTC’s Agricultural Advisory Committee, which has been investigating problems with convergence since 2009. The full Agriculture Advisory Committee is scheduled to review the issue on Aug. 5. The CFTC regulates commodity markets.
Several members of the 18-member subcommittee, which includes farmers, exchange representatives and trade groups, said the effectiveness of the new storage rates in promoting convergence will take at least several months to evaluate fully.
“It’s way too early to give VSR credit for the strengthening dynamics,” said Michael Ricks, an assistant vice president for Minnetonka, Minnesota-based Cargill and a member of the board of directors of the Minneapolis Grain Exchange.
To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net.
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