Indiana Grain Company, LLC

Posted: 09/25/09

By: tomgrisafi

We at Indiana Grain have watched wheat slide this morning and it has brought corn and beans right down with it.

As reported by Reuters, a possible move by the Commodity Futures Trading Commission to implement variable storage rates for the Chicago Board of Trade 2009 December wheat contract jolted traders Thursday and sparked heavy spread trading.

"It really took us off guard and creates a lot of uncertainty," said one wheat broker on the CBOT trading floor. "We saw the back month spreads widened out overnight, starting with the March contract."

The CBOT wheat spreads expanded during the session, with the March 2010/March 2011 differential jumping 10 cents a bushel. By the close, the March 2010/March 2011 spread was 6 cents wider.

A CFTC subcommittee made up of grain industry, exchange and government officials to study the current lack of "convergence" at CBOT wheat expirations recommended trying the variable rates on Wednesday as the next step to try to fix the contract.

The move would allow the exchange to raise or lower grain storage rates at CBOT delivery facilities by roughly 3 cents a month starting with the December 2009 contract.

The real "shocker" to CBOT traders was that the proposal, if implemented, would change the rules in the December contract -- the one with the largest open interest and the one where most of the price bets by futures traders have been placed.

As of Wednesday's close, December 2009 open interest was over 200,000 contracts, or 63 percent of the total.

Source: Bloomberg, Reuters, AP

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