December 1, 2009

CFTC approves CBOT wheat futures variable storage rate

The Commodity Futures Trading Commission approved on Friday (November 27) a change to the Chicago Board of Trade's wheat futures contract that is designed to narrow the gap between futures and cash wheat prices, the CME Group said Monday.

The CME, which is the parent company for the CBOT, proposed a variable storage rate for its wheat contract to help the futures and cash markets come together during the futures delivery period. Traditionally futures and cash prices converge to a common price during the delivery time, but in the past few years futures prices have remained significantly above the cash prices because of speculative investment. This price discrepancy makes it difficult for the wheat industry to use the CBOT contact as a hedging tool.

Approval of the variable storage rate was expected, but some members of the wheat industry complained to the CFTC that the proposal was only a minor fix to the convergence problem. The CME says the variable storage rate can fluctuate from contract month to contract month and a higher storage rate will encourage deliveries of wheat against the futures, forcing the cash and futures markets to come together.

The variable storage rate replaces a seasonal storage charge and will begin with the July 2010 contract.