WASHINGTON, D.C. (Reuters) – The U.S. Commodity Futures Trading Commission is looking closely at a number of ways to fix the price difference between futures and cash prices in the wheat market despite recent improvements.
CFTC chair Gary Gensler said the lack of convergence damages the credibility of the wheat market and makes it difficult for users to hedge their risks.
“We’re still looking at this, looking at it closely,” Gensler said.
“There are a number of alternatives that I think are appropriate to be looked at to change the contract itself.”
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Among the proposals being considered are variable storage rates and a change in delivery points. A CFTC subcommittee last month proposed implementing variable storage rates on the Chicago Board of Trade December 2009 wheat contract despite concerns from the CME Group, parent of CBOT, given the large amount of open interest remaining in that contract.
“It is one alternative and it could be part of the solution,” Gensler said.
“We’re not satisfied with where we are.”
CME Group said it plans to implement variable storage rates beginning with the September 2010 contract expiration, pending CFTC approval.
CBOT wheat traders bitterly complained the CFTC subcommittee recommendation to apply new storage rates in December prompted violent swings in futures prices, causing some to lose hundreds of thousands of dollars in two days.
Grain producers, merchants, handlers and other industry officials have told the CFTC the discrepancy between U.S. grain and cash prices is improving, but the underlying goal of convergence has not been reached.
The price difference between U.S. soft red winter cash wheat and CBOT futures tightened with September expiration. The September contract marked the second CBOT wheat futures delivery cycle reflecting revised contract specifications, including more delivery points and increased grain storage rates.
Gensler said the September contract was modestly better than previous contracts.
