Comment Text:
The failure of the CME corn and soybean contracts to converge with cash markets reduces the efficiency and value of the contracts as a hedging tool. However, the real pain is felt by the natural short in the market and most notably by the farmer. Non-convergence hinders the ability to reflect the true crop insurance indemnity due to the producer.
For this reason, Ag Partners Coop supports the increase in monthly storage rate in corn and soybeans from 5 cents per month to 8 cents per month to facilitate convergence.
However, no market trades in a vacuum and the inflexibility of the contract and slow speed to adapt is also part of the problem. Therefore, Ag Partners Coop also supports a hybrid VSR which would allow for an annual observation period and suggest using CZ/CH and SX/SF. If during the annual observation period carry exceeds 80% of full carry, increase the monthly storage rate by 5 cents per month. Storage charges could decrease by 5 cents per month if during the annual observation period carry was below 50% of full carry but not decrease below the 8 cent per month base rate.
The added change of moving to a hybrid VSR with an annual observation period would allow the corn and soybean contracts to reflect current market conditions (ie Chinese soybean tariff) and still provide known contract specifications to all participants.
Thank you for your consideration.
Rick Anderson
Ag Partners
