Comment Text:
CFTC MUST take action to improve Soybean contact convergence
-CME contract review process is TOO SLOW taking 3 years to affect change from beginning of problem to change. This can result in changes well after a convergence issue develops.
-lack of convergence penalizes everyone, but affects those without large international networks to offset their risk the most, the Country Elevator that serves soybean farmers.
-If a crop insurance indemnity is due to farmers in a low basis environment, that indemnity is reduced by the amount of nonconvergence since crop insurance reference prices utilize futures values rather than cash values.
-non converging markets reduce lenders’ willingness to provide credit for hedging. Recent HUGE crops are more difficult to carry forward without proper convergence
Hybrid alternative
- VSR solves the above problems, but a hybrid with 1 yearly observation period creates less complexity and uncertainty about what full carry is.
-The Hybrid is dynamic and requires no CME focus groups or going far out on the curve where open interest is low. CME evaluates every 6 months daily price contract limits, so Hybrid idea IS working.
-We suggest utilizing current VSR measures of 80% of full carry to provide a monthly deliverable storage increase of 5c, and 50% of full carry to provide a monthly deliverable storage decrease of 5c (not to decrease below the 8c monthly base rate).
-We suggest using CZ/CH and SX/SF for annual observation periods as new crop value of storage would be known.
