Commercial grain interests such as millers and grain elevators are struggling with increased volatility in the Chicago Board of Trade wheat market, representatives at an industry meeting said on Thursday.
The meeting, called by the CBOT to explore the possibility of amending the exchange's soft red winter wheat contract, however, found there was little consensus on specific solutions.
"We have been concerned for several years that the contract, as a classic hedge mechanism, is losing its value," said Jim Bair, vice president of the North American Millers' Association, a trade group whose membership operates nearly all of the US wheat milling capacity. "Dramatically increased volatility as well as a lack of convergence, we think, is further diminishing the value of the contract," Bair said.
No action was taken on proposals floated by the exchange, which included raising the storage charges for carrying wheat warehouse receipts, and changing the delivery instrument in CBOT wheat futures from a warehouse receipt to a shipping certificate.
The market's volatility is due in part to a huge influx of money into wheat and other commodities from index funds, which take on a long position and hold it for a year or more. Speculative investment in commodities has been rising over the last two years, inspired by burgeoning growth in China and India. The bullish outlooks have drawn an unprecedented amount of interest to the CBOT's soft red winter wheat futures contract, with volume and open interest hitting all-time highs this year.
Then this autumn, a drought in Australia, the world's No 3 wheat exporter, led to a tightening of world wheat supplies and sent CBOT wheat futures skyrocketing to 10-year highs. But in a seeming paradox, cash values for US soft red winter wheat, the type traded at the CBOT, remained weak amid poor demand in the domestic and export markets.
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