Comment Text:
We have witnessed convergence only 1-2 times in the past several years for both corn & beans. This has forced the basis lower in many markets which can force farmers to lose crop insurance indemnity pmts as they are calc'd off futures not cash. While the CME's recommendation of 8cts/month is greatly appreciated, it may not be enough to address convergence issues especially in situations such as this Fall. My recommendation is that a hybrid model is used where storage rates can be adjusted an additional 5ct/mo beyond the 8ct/mo if we're over 80% full carry against the Z/H and/or X/F. Similar to KC & Chi, if we're between 50-80% full carry, then rates are unch. If we're below 50%, then we go back to 8ct/mo. The benefit of a hybrid model is it's done once per year and its easy to explain. The challenge with the VSR today is that one can't simply explain it in a few sentences so it gets a bad rep, even though it's helped provide convergence to both contracts. I suggest we start this ASAP as our largest customer is currently not buying soybeans this fall.
