Comment Text:
For some time now, our industry has been in need of an improved delivery system. Storage rates need to be able to change with fluctuating market conditions in order to work properly. It must be dynamic to market conditions and influences and not politics like the current system we use. The current changes, too, are taking too long to implement (3 yrs), so convergence is not timely to influence. A lack of convergence does not represent the market conditions and is unfair to all while unfairly benefiting large companies that can more easily offset risks.
A recently suggested VSR would solve the problem. A hybrid with one yearly observation period would create less complexity and uncertainty about what full carry is and how it is affected by changing market conditions. This hybrid is flexible and does NOT rely on the CME focus groups and applies where open interest is significant.
Utilizing current VSR measures of 80% of full carry 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 also believe that using CZ/CH and SX/SF for annual observation periods as new crop value of storage should be known and adopted.
Furthermore, would be in a crop insurance situations for the producer. This usually has our industry us in a wide (low) basis situation. Indemnity payments to the producers are reduced if the market is unable to converge correctly as reference prices use futures instead of cash market value. Most importantly, this non-convergence reduces our ability to borrow credit and funds for daily hedging activity.
We look forward to a fair, productive, and swift resolution that will benefit the entire industry.
