Chicago Wheat Futures Contract Changes Discussed

Various segments of the wheat industry gathered in Chicago recently to discuss possible changes in the wheat futures contract at the Chicago Board of Trade.  The agenda covered DON (vomitoxin), possible delivery of Michigan soft white against the CBOT Wheat contract, and whether they should make any contract changes to account for the eventual commercialization of biotech wheat.  No decisions were made on any of these issues; the meeting was a collection of input for CBOT from producers, millers, merchants, delivery houses, local traders, and other interested parties.  Monsanto also participated in the biotech discussion.

Vomitoxin was the most contentious item on the agenda.  There was mixed opinion on whether to leave the specification at 5 parts per million (ppm), or reduce it to some lower level. The 5 ppm level currently used in the contract complies with general government guidance, although the FDA requirement for flour is 1 ppm.  Millers present at the meeting stated that it is very difficult to get 2 ppm wheat down to 1 ppm flour, so the 5 ppm spec does not meet their needs.  The export market apparently leans toward 2 ppm as an allowable level, although testing is not generally required. The domestic millers indicated that they do test every inbound shipment. 

CBOT staff also stated that the Winnipeg Commodity Exchange also recently implemented a tight vomitoxin spec - CBOT economist Fred Seamon stated that it was a maximum of 0.5 ppm for delivery at par price, with a discount of C$20/MT (US$0.41/bu) for vomitoxin between 0.5 and 2.0.  They also make an allowance for the variability of the test, not imposing the penalty until the DON test is actually 0.8 ppm. 

NAWG CEO Daren Coppock, who participated in the meeting, indicated that producer concerns are (a) variability of the test and the arbitrary and unrepeatable economic penalties that can result, and (b) having a futures contract vary substantially from the terms required in the real world cash market.

The group also considered a request that soft white wheat from Michigan be deliverable against the Chicago wheat contract, which can currently accept any kind of red wheat (even HRS) for delivery.  CBOT showed data that Michigan SWW has historically traded at a discount to the nearby Chicago futures contract, which runs contrary to the historic relationship of Chicago futures and PNW soft white. Commercial traders also chimed in against this idea, with one stating that not knowing whether you’ll get red or white wheat on delivery is a major problem.  Thus, this idea will probably not be pursued.

In the biotech wheat discussion, Monsanto reviewed the status of Roundup Ready Wheat, and their pledge not to release the technology before it’s accepted in the marketplace. Coppock stated NAWG’s preference for not making changes in the futures contract, but instead relying on the cash market to address Roundup Ready wheat.

The options put forward by CBOT staff included (a) allow takers to specify non-GM at par; (b) allow takers to specify non-GM at an Exchange-determined premium; (c) allow takers to specify non-GM with the premium privately negotiated between the parties; (d) require all deliveries to be non-GM; (e) make no rule changes.

CBOT indicated it would take these matters under advisement, and promised to communicate with the group before taking further action on these issues.