Recent Delivery Performance of CME Corn, Soybean, and Wheat Futures - - PowerPoint PPT Presentation

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Recent Delivery Performance of CME Corn, Soybean, and Wheat Futures - - PowerPoint PPT Presentation

Feb 28, 2024 14 likes •580 views

Recent Delivery Performance of CME Corn, Soybean, and Wheat Futures Contracts Scott H. I rwin, Philip Garcia, Darrel L. Good, and Eugene L. Kunda Delivery Location Basis on the First Day of Expiration for CME Corn Futures, I llinois River North

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SLIDE 1

Recent Delivery Performance of CME Corn, Soybean, and Wheat Futures Contracts

Scott H. I rwin, Philip Garcia, Darrel L. Good, and Eugene L. Kunda

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SLIDE 2

Delivery Location Basis on the First Day of Expiration for CME Corn Futures, I llinois River North of Peoria, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10

Dec-01 May-02 Sep-02 Mar-03 Jul-03 Dec-03 May-04 Sep-04 Mar-05 Jul-05 Dec-05 May-06 Sep-06 Mar-07 Jul-07 Dec-07 May-08 Sep-08

Contract Expiration Month Basis (cents/bu.)

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SLIDE 3

Delivery Location Basis on the First Day of Expiration for CME Soybean Futures, I llinois River North of Peoria, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 100
  • 80
  • 60
  • 40
  • 20

20

Nov-01 Mar-02 Jul-02 Sep-02 Jan-03 May-03 Aug-03 Nov-03 Mar-04 Jul-04 Sep-04 Jan-05 May-05 Aug-05 Nov-05 Mar-06 Jul-06 Sep-06 Jan-07 May-07 Aug-07 Nov-07 Mar-08 Jul-08 Sep-08

Contract Expiration Month Basis (cents/bu.)

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SLIDE 4

Delivery Location Basis on the First Day of Expiration for CME W heat Futures, Toledo, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 200
  • 180
  • 160
  • 140
  • 120
  • 100
  • 80
  • 60
  • 40
  • 20

20 Dec-01 May-02 Sep-02 Mar-03 Jul-03 Dec-03 May-04 Sep-04 Mar-05 Jul-05 Dec-05 May-06 Sep-06 Mar-07 Jul-07 Dec-07 May-08 Sep-08 Contract Expiration Month Basis (cents/bu.)

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SLIDE 5

Perfect Basis Predictability

  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80 100

  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80 100 x = Initial Basis (cents/bu.) y = Change in Basis (cents/bu.)

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SLIDE 6

Predictability of CBOT Corn Basis Change to First Day of Delivery, All Delivery Locations Pooled, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

Dec 2001 - Dec 2005 y = -0.87x - 0.61 R2 = 0.87 Mar 2006 - Sep 2008 y = -0.28x + 1.02 R2 = 0.07

  • 30
  • 20
  • 10

10 20 30 40 50 60 70

  • 70
  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20 x = Initial Basis (cents/bu.) y = Change in Basis (cents/bu.)

Note: September 2005 observations omitted

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SLIDE 7

Predictability of CBOT Soybean Basis Change to First Day of Delivery, All Delivery Locations Pooled, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

Nov 2001 - Nov 2005 y = -0.87x - 9.03 R2 = 0.78 Jan 2006 - Sep 2008 y = -0.48x - 10.99 R2 = 0.31

  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80

  • 120
  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80 100 x = Initial Basis (cents/bu.) y = Change in Basis (cents/bu.)

Note: September 2005 observations omitted

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SLIDE 8

Predictability of CBOT W heat Basis Change to First Day of Delivery, All Delivery Locations Pooled, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

Dec 2001- Dec 2005 y = -0.76x + 2.65 R2 = 0.48 Mar 2006 - Sep 2008 y = 0.003x + 4.02 R2 = 0.00

  • 80
  • 60
  • 40
  • 20

20 40 60 80 100

  • 300
  • 250
  • 200
  • 150
  • 100
  • 50

50 x = Initial Basis (cents/bu.) y = Change in Basis (cents/bu.)

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SLIDE 9

Maine Potato Futures

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SLIDE 10

"If improvements are not made in the Maine futures contract, then the banning of trading in this contract might be considered. But specific prohibitions of economic activity are usually unwise, and if the market continues to behave badly, the question likely will become

  • mute. Few traders are likely to use a bad

market, and the market could very well die of natural causes." (p. 177) Committee on Agriculture, Nutrition, and Forestry, United States Senate, "Potato Futures Study", 96th Congress, 1st session, U.S. Government Printing Office, November 5, 1979

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SLIDE 11

A Perplexing Econom ic Problem

  • Persistence of non-convergence
  • Magnitude of non-convergence
  • Inconsistencies among commodities

and over time

  • Seasonality
  • Most serious for wheat
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SLIDE 12

Key Role of the Carry

  • When carry (spread) is large:

– Incentive to hold delivery instrument and earn carry by hedging in the next contract – Futures delivery does not lead to load out (movement) in the cash market – Basis widens due to asymmetry in ability to force convergence

  • Bottom line: Arbitrage link between

cash and futures broken

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SLIDE 13

% Full Cost of Carry Calculation

  • % = [ (F2 – F1)/ (Storage + Interest Costs)] * 100
  • F2 = Price of next nearest to expiration futures

contract

  • F1 = Price of nearest to expiration futures

contract

  • Storage = CME contract rate x # days
  • Interest = (3 mo. T-bill rate)/ 365 x # days
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SLIDE 14

Daily Spread betw een Nearest and Next Nearest to Expiration Contracts for CME Corn Futures, Septem ber 2 0 0 1 -Septem ber 2 0 0 8 ( 3 m o. T-bills)

0% 20% 40% 60% 80% 100% 120% 140% 160%

01-Sep-01 01-Mar-02 01-Sep-02 01-Mar-03 01-Sep-03 01-Mar-04 01-Sep-04 01-Mar-05 01-Sep-05 01-Mar-06 01-Sep-06 01-Mar-07 01-Sep-07 01-Mar-08 01-Sep-08

Date Percent of Fully Carry

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SLIDE 15

Daily Spread betw een Nearest and Next Nearest to Expiration Contracts for CME Soybean Futures, Septem ber 2 0 0 1 - Septem ber 2 0 0 8 ( 3 m o. T-bills)

0% 20% 40% 60% 80% 100% 120% 140% 160%

01-Sep-01 01-Mar-02 01-Sep-02 01-Mar-03 01-Sep-03 01-Mar-04 01-Sep-04 01-Mar-05 01-Sep-05 01-Mar-06 01-Sep-06 01-Mar-07 01-Sep-07 01-Mar-08 01-Sep-08

Date Percent of Full Carry

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SLIDE 16

Daily Spread betw een Nearest and Next Nearest to Expiration Contracts for CME W heat Futures, Septem ber 2 0 0 1 -Septem ber 2 0 0 8 ( 3 m o. T-bills)

0% 20% 40% 60% 80% 100% 120% 140% 160%

01-Sep-01 01-Mar-02 01-Sep-02 01-Mar-03 01-Sep-03 01-Mar-04 01-Sep-04 01-Mar-05 01-Sep-05 01-Mar-06 01-Sep-06 01-Mar-07 01-Sep-07 01-Mar-08 01-Sep-08

Date Percent of Full Carry

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SLIDE 17

Total Deliveries of CME Corn Futures, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

20 40 60 80 100 120 140 160 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Contract Expiration Month Deliveries (mil. bu.)

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SLIDE 18

Total Deliveries of CME Soybean Futures, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

20 40 60 80 100 120 140 160 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Contract Expiration Month Deliveries (mil. bu.)

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SLIDE 19

Total Deliveries of CME W heat Futures, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

20 40 60 80 100 120 140 160 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Contract Expiration Month Deliveries (mil. bu.)

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SLIDE 20

Barge Lineup for Load Out through CME Corn and Soybean Futures Delivery System , January 2 0 0 3 - Septem ber 2 0 0 8

10 20 30 40 50 60 70 80

1-Jan-03 1-Apr-03 1-Jul-03 1-Oct-03 1-Jan-04 1-Apr-04 1-Jul-04 1-Oct-04 1-Jan-05 1-Apr-05 1-Jul-05 1-Oct-05 1-Jan-06 1-Apr-06 1-Jul-06 1-Oct-06 1-Jan-07 1-Apr-07 1-Jul-07 1-Oct-07 1-Jan-08 1-Apr-08 1-Jul-08

Date Number of Barges

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SLIDE 21

Outstanding Shipping Certificate Registrations for CME Corn Futures, July 2 0 0 3 - Septem ber 2 0 0 8

5 10 15 20 25 30 35 40

11-Jul-03 11-Oct-03 11-Jan-04 11-Apr-04 11-Jul-04 11-Oct-04 11-Jan-05 11-Apr-05 11-Jul-05 11-Oct-05 11-Jan-06 11-Apr-06 11-Jul-06 11-Oct-06 11-Jan-07 11-Apr-07 11-Jul-07 11-Oct-07 11-Jan-08 11-Apr-08 11-Jul-08

Date Registrations (mil. bu.)

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SLIDE 22

Outstanding Shipping Certificate Registrations for CME Soybean Futures, July 2 0 0 3 - Septem ber 2 0 0 8

5 10 15 20 25 30 35 40

01-Jul-03 01-Oct-03 01-Jan-04 01-Apr-04 01-Jul-04 01-Oct-04 01-Jan-05 01-Apr-05 01-Jul-05 01-Oct-05 01-Jan-06 01-Apr-06 01-Jul-06 01-Oct-06 01-Jan-07 01-Apr-07 01-Jul-07 01-Oct-07 01-Jan-08 01-Apr-08 01-Jul-08

Date Registrations (mil. bu.)

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SLIDE 23

Stocks or Shipping Certificates Registered for Delivery of CME W heat Futures, July 2 0 0 3 - Septem ber 2 0 0 8

5 10 15 20 25 30 35 40

01-Jul-03 01-Oct-03 01-Jan-04 01-Apr-04 01-Jul-04 01-Oct-04 01-Jan-05 01-Apr-05 01-Jul-05 01-Oct-05 01-Jan-06 01-Apr-06 01-Jul-06 01-Oct-06 01-Jan-07 01-Apr-07 01-Jul-07 01-Oct-07 01-Jan-08 01-Apr-08 01-Jul-08

Date Registrations (mil. bu.)

Chicago

St.L

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SLIDE 24

Percent of Full Carry on FPD,FND,FDD vs Basis for CME W heat Futures, Toledo, March 2 0 0 0 -Decem ber 2 0 0 8

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SLIDE 25

Regression Model for Basis on First Day of Delivery

1. Contract dummy variables to represent seasonal effects 2. Open interest variable to represent congestion effects (long or short squeezes) 3. Piecewise linear variable to represent cost of carry effects

100 % Basis +

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SLIDE 26

Regression Model Estim ation Results for Delivery Location Basis on the First Day of Delivery for CME Corn Futures, I llinois River North of Peoria, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

Dependent Variable: I LRVN Method: Least Squares Date: 09/ 29/ 08 Tim e: 21:07 Sam ple: 1 35 I ncluded observations: 35 New ey- W est HAC Standard Errors & Covariance ( lag truncation= 3) Coefficient Std. Erro t-Statistic Prob. C

  • 6.77

7.10

  • 0.95

0.35 Z 16.78 10.17 1.65 0.11 H 13.67 8.74 1.56 0.13 K 13.83 8.01 1.73 0.10 N 4.87 7.64 0.64 0.53 OI 0.00 0.00

  • 1.67

0.11 CARRY

  • 7.06

2.95

  • 2.39

0.02 I NT80

  • 94.83

18.58

  • 5.10

0.00 R- squared 0.67 Mean dependent - 13.44 Adjusted R- squared 0.59 S.D. dependent 16.52 S.E. of regression 10.59 Akaike info crite 7.76 Sum squared resid 3028.73 Schw arz criterio 8.11 Log likelihood

  • 127.72 Hannan- Quinn c

7.88 F- statistic 7.96 Durbin- W atson 2.37 Prob( F- statistic) 0.00

  • 70
  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10

  • 0.8
  • 0.4

0.0 0.4 0.8 1.2 CARRY ESTLINE ILRVN

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SLIDE 27

Regression Model Estim ation Results for Delivery Location Basis on the First Day of Delivery for CME Soybean Futures, I llinois River North of Peoria, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

Dependent Variable: I LRVN Method: Least Squares Date: 09/ 29/ 08 Tim e: 21:23 Sam ple: 1 49 I ncluded observations: 49 New ey- W est HAC Standard Errors & Covariance ( lag truncation= 3) Coefficient Std. Erro t- StatistProb. C

  • 31.30

11.41

  • 2.74

0.01 X 3.09 14.21 0.22 0.83 F 17.64 11.78 1.50 0.14 H 18.34 13.55 1.35 0.18 K 14.00 12.20 1.15 0.26 N

  • 5.44

11.83

  • 0.46

0.65 Q 1.88 8.82 0.21 0.83 OI 0.00 0.00 0.90 0.37 CARRY

  • 0.49

0.68

  • 0.72

0.48 I NT80

  • 133.36

30.52

  • 4.37

0.00 R- squared 0.43 Mean depende - 25.92 Adjusted R- squared 0.30 S.D. dependen 21.00 S.E. of regression 17.61 Akaike info cr 8.76 Sum squared resid 12100.97 Schw arz criter 9.14 Log likelihood

  • 204.50 Hannan- Quinn

8.90 F- statistic 3.25 Durbin- W atso 1.47 Prob( F- statistic) 0.00

  • 120
  • 100
  • 80
  • 60
  • 40
  • 20
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 CARRY ESTLINE ILRVN

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SLIDE 28

Regression Model Estim ation Results for Delivery Location Basis on the First Day of Delivery for CME W heat Futures, Toledo, Decem ber 2 0 0 1 - Septem ber 2 0 0 8

Dependent Variable: TOLEDO Method: Least Squares Date: 09/ 10/ 08 Tim e: 13:35 Sam ple: 1 35 I ncluded observations: 35 New ey- W est HAC Standard Errors & Covariance ( lag truncation= 3) Coefficient Std. Errot-Statist Prob. C 24.01 12.38 1.94 0.06 Z 24.66 20.53 1.20 0.24 H 11.64 14.56 0.80 0.43 K

  • 3.32

15.41

  • 0.22

0.83 N 7.58 19.95 0.38 0.71 OI

  • 0.01

0.00

  • 2.52

0.02 CARRY

  • 7.04

16.20

  • 0.43

0.67 I NT86

  • 157.70

71.94

  • 2.19

0.04 R- squared 0.62 Mean depende - 26.04 Adjusted R- squared 0.52 S.D. dependen 42.34 S.E. of regression 29.23 Akaike info cri 9.79 Sum squared resid 23069.29 Schw arz criter 10.14 Log likelihood

  • 163.25 Hannan- Quinn

9.91 F- statistic 6.34 Durbin- W atso 1.70 Prob( F- statistic) 0.00

  • 200
  • 160
  • 120
  • 80
  • 40

40

  • 0.5

0.0 0.5 1.0 1.5 CARRY ESTLINE TOLEDO

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SLIDE 29

W hy Did the Carry Becom e So Large?

  • CME storage rates too low

– Maybe for wheat, according to most recent CME storage rate survey

  • Rolling of positions by index funds
  • Risk premium (Pirrong)

– Positive shock to variance of fundamental uncertainty increases the precautionary demand for stocks – Leads to an increase in the expected price

  • f storage, as reflected in the spreads

between near and deferred futures

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SLIDE 30

2 0 0 8 CME Storage Cost Survey

  • Current Storage Rates are approximately 5

cents per bushel per month in wheat and 4.5 cents per bushel per month in soybeans and

  • corn. The soybean and corn storage rates will

increase to 5 cents per bushel per month in November and December respectively.

  • Storage Rate Survey respondents reported an

average 18.47 cents per bushel minimum storage charges from harvest until January 1 and then 3.58 cents per month thereafter. Respondents who broke down their storage charges reported corn storage at 3.65 cents per month; soybean storage at 4.13 cents per month; and wheat storage at 6.67 cents per month.

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SLIDE 31

2 0 0 8 CME Storage Cost Survey

  • Storage Rate Survey respondents report that

building new permanent storage costs, on average, $2.19 per bushel. An elevator who borrows $2.19 for five years at 6% interest would face monthly payments of 4 cents per month for 60 months. Thus, an elevator financing new storage space would expect to receive, on average, more than 4 cents per bushel per month in order to effect a positive return on new-storage investment not counting

  • perating expenses.
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SLIDE 32

Goldm an Roll Effect in the Nearby Futures Spread F2 - F1 Expiration of Contract 1 Beginning of Roll Window

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SLIDE 33

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Corn Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003Z

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SLIDE 34

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Corn Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003Z 2004H-2005Z

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SLIDE 35

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Corn Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003Z 2004H-2005Z 2005H-2008U

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SLIDE 36

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Soybean Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001X-2003X

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SLIDE 37

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Soybean Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001X-2003X 2004F-2005X

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SLIDE 38

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME Soybean Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 12%
  • 8%
  • 4%

0% 4% 8% 12% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001X-2003X 2004F-2005X 2006F-2008N

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SLIDE 39

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME W heat Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003U

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SLIDE 40

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME W heat Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003U 2003Z-2005U

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SLIDE 41

Deviation of Nearby Spread from Average Percent of Full Carry during the Goldm an Roll W indow , CME W heat Futures, Decem ber 2 0 0 1 -Septem ber 2 0 0 8

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Day of the Roll Month (GSCI Rolls on Business Days 5-9) Spread Deviation from 15-day Average 2001Z-2003U 2003Z-2005U 2005Z-2008U

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SLIDE 42

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

March 12, 2004

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SLIDE 43

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

September 14, 2005 March 12, 2004

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SLIDE 44

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

March 12, 2004 September 14, 2005 September 14, 2006

slide-45
SLIDE 45

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

March 12, 2004 September 14, 2005 September 14, 2006 March 14, 2007

slide-46
SLIDE 46

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

March 12, 2004 September 14, 2005 September 14, 2005 March 14, 2008 March 14, 2007

slide-47
SLIDE 47

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

March 12, 2004 September 14, 2005 September 14, 2005 March 14, 2007 March 14, 2008 July 16, 2008

slide-48
SLIDE 48

Nearby CME Corn Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

100 200 300 400 500 600 700 800

04-Jan-04 02-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 08-Dec-08 06-Jun-09 03-Dec-09 01-Jun-10 28-Nov-10 27-May-11 23-Nov-11 21-May-12 17-Nov-12

Date Price (cents/bu.)

slide-49
SLIDE 49

Nearby CME Soybean Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

500 700 900 1100 1300 1500 1700

4-Jan-04 2-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 8-Dec-08 6-Jun-09 3-Dec-09 1-Jun-10 28-Nov-10 27-May-11 23-Nov-11

Date Price (cents/bu.)

slide-50
SLIDE 50

Nearby CME W heat Futures Prices and Structure of Deferred Futures Prices on Last Day of Delivery, January 2 0 0 4 - Septem ber 2 0 0 8

200 400 600 800 1000 1200 1400

4-Jan-04 2-Jul-04 29-Dec-04 27-Jun-05 24-Dec-05 22-Jun-06 19-Dec-06 17-Jun-07 14-Dec-07 11-Jun-08 8-Dec-08 6-Jun-09 3-Dec-09 1-Jun-10 28-Nov-10

Date Price (cents/bu.)

slide-51
SLIDE 51

Structural I ssues and Delivery Problem s

  • Limited commercial activity
  • Grading uncertainty
  • Thin market price bids
  • Market imbalances
slide-52
SLIDE 52

Monthly Receipts and Shipm ents at Delivery Locations for CME Corn Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

10 20 30 40 50 60 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Calendar Month Shipments (mil. bu.) Peoria-Pekin Ottawa-Chillicothe Lockport-Seneca Chicago

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SLIDE 53

Monthly Receipts and Shipm ents at Delivery Locations for CME Soybean Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

10 20 30 40 50 60 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Calendar Month Shipments (mi. bu.) St Louis River Area Havana-Grafton Peoria-Pekin Ottawa-Chillicothe Lockport-Seneca Chicago

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SLIDE 54

Monthly Receipts and Shipm ents at Delivery Locations for CME W heat Futures, Novem ber 2 0 0 1 -Septem ber 2 0 0 8

10 20 30 40 50 60 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Calendar Month Shipments (mil. bu.) Toledo St Louis Chicago

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SLIDE 55

Solutions

  • 1. Address the carry
  • -increase contract storage rates
  • 2. Address the disconnect between delivery

and load out

  • - forced load out/ demand certificates
  • - cash settle
  • 3. Address structural issues
  • - additional delivery locations
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SLIDE 56

I m portant I ssues

  • Who benefits/ loses from changes?
  • How is long/ short market balance

altered from proposed changes?

  • Unintended consequences of forced

convergence?

  • Must address asymmetry—inability to

force convergence from the short side