A plea for market convergence

The Commodity Futures Trading Commission’s Agricultural Advisory Committee was told yesterday that it needs to quickly address the lack of convergence between ag commodity futures and cash prices.

According to this Dow Jones story, two potential solutions discussed by panel members included a proposal to significantly increase premium charges for grain storage and a proposal for a quicker "compelled load-out," which would allow a warehouse certificate holder to force an elevator to deliver physical commodities in as little as 48 hours.

Advance Trading’s Terry Reinhart told the panel that doubling premium charges would assure convergence. CME’s Dave Lehman said a rate increase for storage is being tried under advisement by the National Grain and Feed Association, but so far the results have been disappointing.

He said CME will also try implementing new seasonal storage rates and setting up additional delivery locations.

Brownfield’s Peter Shinn, in this report, noted that with the sharp run-up in ag commodity prices this year, convergence didn't happen for wheat and cotton some months. And that made the hedges of commercial market players worthless.

This reminds me of a Congressional hearing in June where the discussion centered on CFTC and oil markets. One person who testified said futures markets were turning into "gambling casinos". Check out that post.