CME says no current plans to introduce VSR in corn futures

Chicago | Reuters — CME Group, owner of the Chicago Board of Trade grain exchange, said on Wednesday it had no immediate plans to introduce its controversial variable storage rate (VSR) scheme in its CBOT corn futures, the world pricing benchmark for the biggest and most valuable feed grain.

“We have no current plans to implement VSR in corn,” CME spokesman Damon Leavell told Reuters.

Leavell said he was responding to Twitter feeds on Wednesday morning that included a statement that “CME Market Development says that they have the support to impose VSR on the corn contract.”

CME said earlier this summer it was reviewing its corn futures contract, a process it conducts periodically. Industry sources said among the topics CME is looking at is VSR in corn.

CBOT’s soft red winter (SRW) wheat contract is the only CBOT grain futures that is affected by VSR, a complex formula introduced in 2010. VSR raises or lowers the costs to store wheat eligible for delivery against CBOT futures depending on the shifting price differences in the nearby futures contracts.

CME introduced VSR after loud complaints from grain merchants and traders about persistent wide gaps between soft red winter wheat cash prices and futures prices during contract expirations. Such lack of “convergence” pushed many hedgers, core CME clients who insure price risk through futures, away from the market.

At one point, SRW wheat cash prices basis at Toledo, Ohio — the key CME delivery point for soft red wheat — had dropped to as much as US$2 a bushel below CBOT futures. That gap has mostly disappeared with VSR on Wednesday, although some SRW wheat futures traders continue to complain about the scheme’s volatile effects on trading.

Corn cash basis bids at Illinois River locations, the key delivery points for CBOT corn futures, are now running about US25 to 50 cents per bushel below December futures, a discount which traders called normal heading into a big harvest.

— Christine Stebbins reports on U.S. grain and oilseed cash and futures markets for Reuters from Chicago. Additional reporting for Reuters by Julie Ingwersen.

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