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CFTC Turning up Heat on KCBT

The Commodity Futures Trading Commission is pushing the Kansas City Board of Trade to fix the continuing lack of convergence between hard red winter wheat futures and cash prices.

CFTC Chairman Gary Gensler stressed at a hearing of the Commission's Agricultural Advisory Committee that the Kansas City exchange much work harder for a solution that pushes futures and cash prices closer together when futures contracts expire.

"Without convergence hedgers lose confidence in the marketplace, whether that be farmers, millers, grain elevator operators," Gensler said. "I'm particularly interested in how this contract that is having problems now can be addressed for hard-red winter wheat."

KCBT President Jeff Borchardt promised the CFTC that its wheat contract committee is actively working to come up with a fix and predicted it would be able to reach a consensus by October.

"We understand that a mechanism needs to be put into place to avoid the types of basis extremes we've experienced over the past year," Borchardt said. "They are working very diligently, but you also have to remember that this is our contract that we've had for 150 years. It's really the only contract that the Kansas City Board of Trade trades, and we've done, I think, a spectacular job over the years of handling it and the key to us is to get it done right."

According to Borchardt, the lack of convergence boils down to tremendous supplies and scrambling for storage space in the interior. He says the committee understands that there is an issue and that a mechanism is needed to alleviate the stress and to compel convergence and that they are in the process of fleshing out the alternatives.

Even if the KCBT wheat contract committee settles on a course of action by October, Borchardt acknowledged it will take the exchange several more months to implement any remedy.