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| MGEX Won't Change Delivery Rules For Spot March Wheat
(Brownfield Ag News for America - 2/6/2008)
by Peter Shinn and John Perkins
The March hard spring wheat futures contract at the Minneapolis Grain Exchange (MGEX) hasn't had a down day since January 9th, when it lost 13 cents and closed at $10.30 a bushel. In fact, in the majority of trading sessions since then, including Tuesday, the contract has closed at the 30 cent trading limit higher, setting a string of all-time-highs for any wheat contract along the way.
Indeed, Tuesday's close of $14.63 a bushel represented just such an all-time high. The last time the contract didn’t settle limit up was January 30th, when the March added a mere 16 cents.
All this is happening at a time when there’s far less wheat in delivery positions than called for by the March contract’s open interest, which means wheat may have to be imported to settle the contract. A noted market analyst last week also suggested the MGEX might decide to suspend the rules requiring physical delivery of wheat to settle the March contract in order to chase out speculators. But MGEX spokesperson Nancy Krull told Brownfield suspending the rules simply isn’t possible.
"That is correct," Krull said. "Our rules and regulations - if there is open interest in a contract, we cannot make any changes to their delivery process."
According to Krull, when it’s time to settle the MGEX nearby March hard spring wheat contract, those holding long positions will simply either have to sell them, most likely at a sharp loss, or physically deliver the wheat. But she pointed out that shouldn't come as any surprise to market participants.
"I'm sure they're all watching the market closely, knowing that," Krull said.
Krull added that those who are worried about the physical delivery of wheat do have another choice. She noted the MGEX has offered cash-settled futures contracts based on cash grain bid data collected by DTN since 2002, though she conceded the contracts have not attracted the same level of participation as the more traditional futures contracts the MGEX offers.
Still, the MGEX is responding to the recent string of limit-up moves in spring wheat futures by raising its daily trading limit for wheat from 30 to 40 cents starting with the overnight session on February 11th. The rise has been approved by the Commodity Futures Trading Commission, and wire service reports suggest it may be emulated by the two other U.S. wheat exchanges, the Kansas City Board of Trade and Chicago Board of Trade, both of which are owned by the CME Group.
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MGEX NEWS FYI
