At the culmination of many months of discussion both internally and with the CME Group, the NGFA on June 20 transmitted a letter to CME with recommendations for changes to the storage rates for corn and soybean futures contracts.
The letter from NGFA Risk Management Committee Chair MJ Anderson, director of risk management and merchandising at The Andersons Inc. in Maumee, Ohio, acknowledged the huge importance of the corn and soybean contracts for purposes of risk management and price discovery in the grain, feed and processing industry, but also expressed belief that convergence problems have occurred in recent years, especially in the soybean contract. Further, NGFA’s recommendation to CME was that increasing storage rates is the appropriate way to enhance contract performance and convergence.
Regarding whether to adopt an increase in the fixed storage rate for both contracts or whether to move to a variable storage rate (VSR) similar to those in place for soft red winter wheat and hard red winter wheat contracts, the NGFA recommended a 3 cent per bushel per month increase in the fixed storage rate to a total of 8 cents per bushel per month. In its letter, NGFA said that fixed storage rates are well understood, will provide for continuity in markets, and will best preserve relationships with storage mechanisms for the soyoil and soymeal futures contracts.
The NGFA did suggest to CME that an annual observation period followed by a potential once-yearly adjustment to storage rates would provide additional responsiveness to market conditions while maintaining the continuity of fixed rates – and that such a built-in mechanism could be implemented much more quickly than under the current months-long process that seeks to avoid disturbances to contracts with open interest. The NGFA also recommended that CME review and potentially increase loadout fees for greater consistency with delivery economics today.
The full NGFA letter can be accessed here.