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CME Group Proposes Changes to Wheat Contract to Improve Convergence

00:00AM Sep 05, 2008 Editors

In an effort to improve convergence between the wheat futures contract and cash wheat prices at contract expiration, CME Group called for seasonally increased storage fees, additional delivery points and stricter requirements on vomitoxin contamination Friday in a recommendation sent to the Commodity Futures Trading Commission (CFTC) .

Changes to the storage rates include introducing seasonal premium charges to be increased during the period from July through November to 8 cents per bushel per month, according to an offical statement from the CME Group. During the remainder of the crop year from December through June, the exchange is recommending that premium charges remain at their current level of 5 cents per bushel per month

Three additional delivery territories are also recommended. The delivery points would include shuttle train loading facilities in a 12-county area of northwest Ohio, barge loading facilities on the Ohio River from Cincinnati to the Mississippi River, and barge loading facilities on the Mississippi River from below St. Louis to Memphis. In addition, Northwest Ohio locations will be added at a 20 cent per bushel discount, Ohio River locations at par, and Mississippi River locations at a 20 cent per bushel premium.

The seasonal storage rate and additional delivery locations are proposed to be implemented beginning with the July 2009 contract month and the lower vomitoxin level will be implemented with the September 2011 contract month, according to the statement.

The exchange is also recommending that the vomitoxin level for par delivery be lowered from three parts per million (ppm) to two ppm. Wheat containing three ppm of vomitoxin will continue to be deliverable at a 12 cent per bushel discount and wheat containing four ppm of vomitoxin will continue to be deliverable at a 24 cent per bushel discount, CME Group stated.

The CFTC must approve any contract changes and proposed implementation schedule pertaining to the grain and oilseed listings if the changes are applied to contract months with open interest, CME Group stated.

Read more on CME Group policy changes here.