Poor Convergence Performance of CBOT Corn, Soybean and Wheat Futures Contracts: Causes and Solutions

Marketing and Outlook Research Report 2009-02

35 Pages Posted: 15 Oct 2009

See all articles by Scott H. Irwin

Scott H. Irwin

University of Illinois at Urbana-Champaign

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Darrel L. Good

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Eugene Kunda

affiliation not provided to SSRN

Date Written: March 2009

Abstract

Poor convergence performance of CBOT corn, soybean, and wheat futures contracts since late 2005 has been a major source of concern to market participants, regulators, and elected representatives at the state and national levels. After careful review of available evidence, it appears that recent storage rate changes for CBOT corn and soybean contracts were sufficient to address convergence problems is these two markets. The corn and soybean delivery system is functionally sound at the present time because it is located within substantial commercial flows of the commodities. Nonetheless, convergence performance for these two markets should continue to be closely monitored, particularly in light of the downward trend in corn and soybean shipments on the Illinois River. Recent and upcoming storage rate changes for CBOT wheat contracts are also expected to help improve performance of this contract. However, a major change in delivery terms is needed in order to address the underlying structural problems in the CBOT wheat contract. The underlying issue is that historic delivery locations are no longer in the main commercial flow of wheat. Recently approved additions to the delivery locations for wheat are unlikely to address the structural problem because new locations are viewed as “safety-valve” areas that will be used for delivery only when market conditions are unusual.

Keywords: corn, soybeans, wheat, CBOT, delivery, convergence

JEL Classification: Q11, Q13

Suggested Citation

Irwin, Scott and Garcia, Philip and Good, Darrel L. and Kunda, Eugene, Poor Convergence Performance of CBOT Corn, Soybean and Wheat Futures Contracts: Causes and Solutions (March 2009). Marketing and Outlook Research Report 2009-02, Available at SSRN: https://ssrn.com/abstract=1392380 or http://dx.doi.org/10.2139/ssrn.1392380

Scott Irwin (Contact Author)

University of Illinois at Urbana-Champaign ( email )

344 Mumford Hall
1301 W. Gregory Dr.
Urbana, IL 61801
United States
217-333-6087 (Phone)

HOME PAGE: http://https://scotthirwin.com/

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
427 Mumford Hall
Urbana, IL 61801
United States
217-333-0644 (Phone)
217-333-5538 (Fax)

Darrel L. Good

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
326 Mumford Hall, MC-710
Urbana, IL 61801
United States

Eugene Kunda

affiliation not provided to SSRN ( email )

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