Trilogy for troubleshooting convergence: Manipulation, structural imbalance, and storage rates

Scott H. Irwin

doi:10.1016/j.jcomm.2018.11.002

Trilogy for troubleshooting convergence: Manipulation, structural imbalance, and storage rates

Research output: Contribution to journal › Article › peer-review

Abstract

Historically unprecedented episodes of non-convergence occurred during 2005–2010 in Chicago Board of Trade (CBOT) corn, soybean, and wheat futures contracts and Kansas City Board of Trade (KCBOT) wheat futures contracts. A trilogy of explanations has been offered to troubleshoot these episodes—manipulation, structural imbalances, and low storage rates. Theoretical and empirical analysis shows that convergence failures were generated by a disequilibrium between the higher market value of storage in the physical market for grain compared to the storage rate paid to holders of the delivery instrument for grain futures contracts. How to adjust storage rates higher in recognition of this market reality is a highly contentious issue in the grain industry.

Original language	English (US)
Article number	100083
Journal	Journal of Commodity Markets
Volume	17
DOIs	https://doi.org/10.1016/j.jcomm.2018.11.002
State	Published - Mar 2020

Keywords

Convergence
Delivery
Grain futures
Storage
VSR

ASJC Scopus subject areas

Finance
Economics and Econometrics

Online availability

10.1016/j.jcomm.2018.11.002

Library availability

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abstract = "Historically unprecedented episodes of non-convergence occurred during 2005–2010 in Chicago Board of Trade (CBOT) corn, soybean, and wheat futures contracts and Kansas City Board of Trade (KCBOT) wheat futures contracts. A trilogy of explanations has been offered to troubleshoot these episodes—manipulation, structural imbalances, and low storage rates. Theoretical and empirical analysis shows that convergence failures were generated by a disequilibrium between the higher market value of storage in the physical market for grain compared to the storage rate paid to holders of the delivery instrument for grain futures contracts. How to adjust storage rates higher in recognition of this market reality is a highly contentious issue in the grain industry.",

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AB - Historically unprecedented episodes of non-convergence occurred during 2005–2010 in Chicago Board of Trade (CBOT) corn, soybean, and wheat futures contracts and Kansas City Board of Trade (KCBOT) wheat futures contracts. A trilogy of explanations has been offered to troubleshoot these episodes—manipulation, structural imbalances, and low storage rates. Theoretical and empirical analysis shows that convergence failures were generated by a disequilibrium between the higher market value of storage in the physical market for grain compared to the storage rate paid to holders of the delivery instrument for grain futures contracts. How to adjust storage rates higher in recognition of this market reality is a highly contentious issue in the grain industry.

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Trilogy for troubleshooting convergence: Manipulation, structural imbalance, and storage rates

Abstract

Keywords

ASJC Scopus subject areas

Online availability

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