Comment Text:
Futures and cash convergence has been a cornerstone of the CBOT futures contracts since their inception in 1848. Todays market dynamics are such that we have rarely seen corn and bean convergence in the last couple of years. This creates huge inefficiencies and uncertainty for commercial hedgers, farmers and bankers. Farmers are the biggest losers as the risk of no convergence is passed along down thru the chain in lower bids to them. This also affects their crop insurance indemnity. Elevators are unable to manage basis risk with out knowing if cash will converge with futures and this limits their ability to get financing for hedges and for asset expansion. Wider storage charges are needed to help bring cash and futures together. I suggest a modified VSR, where the base storage rate is 8c/mo and there is an annual observation period after harvest to adjust rates if needed. If during the observation period the spread is >80% of full carry, it would trigger the spread to be able to widen an additional 5c/mo. If the spread during the observation period is < 50% of full carry, full carry would narrow 5c/mo, not to drop below 8c/mo. I suggest this start asap as we have potential for a record large bean carryout and its already been over 2 years since weve converged.
