Comment Text:
June 22, 2012
Industry Filing: 12-007
For over a year now the USA Rice Federation and its Rice Futures Contract Working Group have been seeking improvements to the CME Group’s rice contract to improve performance and convergence. We provided comments to the CME Group in March of this year in response to their request for comments on three potential changes being considered to the rice contract (comments attached).
Today, we are writing to provide our comments in support of the proposed change announced by the CME Group on June 4 to increase the storage charge that approved regular rice warehouses may charge holders of outstanding warehouse receipts. The proposed change would increase the current charge of 10 cents per hundredweight to 12.5 cents per hundredweight starting November 18, following the expiration of the November 2012 contract. This change is the result of significant outreach and information gathering by the CME Group since late last year.
In March, the USA Rice Federation Rice Futures Contract Working Group, which consists of representatives from all segments of the rice industry from all production regions, reviewed and discussed the three potential changes to the rice futures contract that were outlined in the CME Group’s e-mail directed to rice market participants dated March 2. The group reached a unanimous consensus that the storage rate should be raised to ''at least'' 40/100s of a cent/cwt/day in an effort to improve convergence. There is unanimous agreement among all segments of the rice industry that this is a step in the right direction to address the convergence issue. The importance of improving convergence and accurate price discovery in the contract is increasing as commodity markets become more volatile and as more Federal farm and risk management policies are built around the futures prices for commodities.
Generally, among our working group there was an acknowledgment that future changes to the contract may need to be considered, but that the increase in storage rates is a good first step. We look forward to seeing this initial change implemented, and tracking what impact it has on the contract performance. Our industry remains open and interested in considering other potential changes – delivery territory expansion and delivery instrument – but we believe it is important to proceed methodically and with caution so as to not disrupt the rice contract. Anything that drives out market participants will only weaken the contract and decrease the market liquidity, which would be harmful to all industry participants.
Thank you for the opportunity to provide comments on behalf of the U.S. rice industry in support of this important change being proposed by the CME Group. We appreciate the role the CFTC plays in ensuring open and transparent commodity markets that serve the risk management and price discovery needs of all market participants. And we thank you for the ongoing dialogue CFTC has with the rice industry about the importance of ensuring a well-functioning rice futures contract.
If you have any questions or need any additional input from us, please contact me or Reece Langley with the USA Rice Federation at 703-236-1471 or [email protected].
Sincerely,
John Owen
Chairman
USA Rice Federation Rice Futures Contract Working Group
