Comment Text:
As a country elevator company, we depend on a well-functioning futures market to offset our price risks. For the last 2 years the corn and bean market have not converged which is a key to a well-functioning market. Academic studies confirm that a higher storage rates will solve the lack of convergence problem. The CME has studied this and is proposing to raise storage rates 3c/month beginning 15 months from now with the Nov19 bean contract. That likely means that beans and possibly corn will have gone 3 years without convergence. Over time Lenders will become concerned with lack of convergence and the cost of funds could be increased. Nonconvergence is also a problem for our farmer customers that use crop insurance. Farmers indemnity payments are based off futures prices. In a low basis/nonconvergence situation the farmers indemnity is reduced by the amount below convergence his cash price is. Our corn and bean contracts need a dynamic adjustment factor to storage rates that allows the market to converge without waiting 3 years. I suggest an annual review each fall when the demand for storage is known. It could utilize current VSR protocals to trigger higher or lower storage rates. Utilizing the CME proposed 8c/month base rate + an annual 5c/month increase or decrease would allow the market to self- adjust and provide a well-functioning and converging futures market.
