[Federal Register: November 25, 1998 (Volume 63, Number 227)]
[Notices]
[Page 65175-65177]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25no98-52]
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COMMODITY FUTURES TRADING COMMISSION
Chicago Board of Trade: Proposed Amendments to the Wheat, Oats,
and Soybean Futures Contracts Modifying Certain Delivery Specifications
of the Wheat Futures Contract, Amending Rules Governing Load Out
Against Warehouse Receipts for Wheat and Oats and Shipping Certificates
for Corn and Soybeans, and Revising the Last Trading and Delivery Days
for the Oats and Wheat Futures Contracts
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed contract market rule change.
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SUMMARY: The Chicago Board of Trade (CBT or Exchange) has submitted
proposed amendments to its wheat futures contract which will modify the
locational price differentials for delivery at Toledo and St. Louis,
change the quality price differentials for U.S. No. 1 and U.S. No. 2
grade northern spring wheat, and reduce the speculative position limits
for the March and May contract months during the last five trading
days. In additional, the Exchange is proposing amendments that will
modify the load-out provisions for the wheat, corn, oats and soybean
futures contracts and which will change the last trading day and the
last delivery day for all contract months for the wheat and oats
futures contracts. The Commission has determined to request pubic
comment on the proposed amendments based upon its finding that the
proposed amendments are of major economic significance within the
meaning of section 5a(a)(12) of the Commodity Exchange Act (Act) and
that their publication is in the public interest and will assist the
Commission in considering the views of interested persons.
DATES: Comments must be received on or before December 28, 1998.
ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. In
addition, comments may be sent by facsimile transmission to facsimile
number (202) 418-5521 or by electronic mail to [email protected].
Reference should be made to the CBT grain futures contracts' delivery
specification proposals.
FOR FURTHER INFORMATION, CONTACT: Please contact Fred Linse of the
Division of Economic Analysis, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581,
telephone (202) 418-5273, facsimile number (202) 418-5527, or
electronically at [email protected].
SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
(Commission), by letter dated December 19, 1996, issued a request to
the Chicago Board of Trade (CBT) to undertake a study of the delivery
specifications of its wheat futures contract and to submit its findings
to the Commission by April 18, 1997, 120 days from the date of the
Commission's request (see 61 FR 67998 (December 26, 1996)).\1\ The CBT
responded to the Commission's request by letter dated April 18, 1997,
providing a status report to the Commission of its actions.\2\ The
Commission on July 8, 1997, solicited public comment on the delivery
specifications of the CBT's wheat futures contract (62 FR 36499) to
assist it in considering the concerns identified in the Commission's
December 19, 1996 notification. The CBT on October 21, 1998, submitted
to the Commission for its review proposed amendments to its wheat
futures contract.
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\1\ The request was made in conjunction with the Commission's
notification to the CBT under Section 5a(a)(10) of the Act, 7 U.S.C.
Sec. 7a(a)(10), that the delivery terms of the CBT corn and soybean
futures contracts no longer accomplish the statutory objectives of
"permit[ting] the delivery of any commodity . . . at such point or
points and at such quality and locational price differentials as
will tend to prevent or diminish price manipulation, market
congestion, or the abnormal movement of such commodity in interstate
commerce." This request was based on the continuing diminution of
the role of terminal markets in the cash market for grain, the
increasing shift of the locus of the main channels of commodity
flows away from the delivery points on the grain contracts,
particularly the par delivery point of Chicago, and the resulting
precipitous drop in regular warehouse storage capacity at the
Chicago delivery point. For corn and soybeans, the Commission on
November 7, 1997, issued an Order changing and supplementing under
Section 5a(a)(10) of the Act, 7 U.S.C. 7a(a)(10), the delivery terms
of those futures contracts (62 FR 60831 (November 13, 1997)), and,
on May 7, 1998, approved further changes to the corn and soybeans
futures contracts' delivery terms (63 FR 26575 (May 13, 1998)).
\2\ The CBT reported that, although a Task Force appointed by
the CBT Board of Directors had recommended certain changes to the
delivery terms of the wheat futures contract, the Board had decided
to refrain from acting on those recommendations at that time and
determined instead to conduct market research to determine whether a
broader review of the contract, not limited to its delivery terms,
should be undertaken.
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Current Contract Terms
The wheat futures contract's current terms provide for the delivery
of warehouse receipts representing U.S. No. 1 or U.S. No. 2 grade soft
red winter wheat, dark northern spring wheat, northern spring wheat, or
hard red winter wheat in store at CBT-approved
[[Page 65176]]
(regular) delivery warehouses located in Chicago, Toledo and St. Louis.
(Only soft red winter wheat is deliverable at St. Louis.) U.S. No. 2
grade soft red winter wheat, U.S. No. 2 dark northern spring wheat,
U.S. No. 2 hard red winter and U.S. No. 1 northern spring wheat are
deliverable at par. U.S. No. 1 grade soft red winter wheat, dark
northern spring wheat, and hard red winter wheat are deliverable at a
premium of three cents per bushel. U.S. No. 2 grade northern spring
wheat is deliverable at a discount of one cent per bushel. Currently,
wheat is deliverable in Chicago at par, in Toledo at a discount of two
cents per bushel, and in St. Louis at a premium of eight cents per
bushel.
The oats futures contract calls for the delivery of warehouse
receipts representing oats in store at regular warehouses in Chicago
and Minneapolis/St. Paul.
Beginning in the year 2000, the corn and soybean futures contracts
will call for the delivery of shipping certificates providing for the
loading out of corn at regular shipping stations in Chicago and on the
northern Illinois River and the loading out of soybeans at regular
shipping stations in Chicago, St. Louis, and on the Illinois River.
Under the current delivery procedures for the wheat and oats
futures contracts, warehouse receipt holders may require load out of
wheat or oats from regular elevators into vessels, barges or rail cars.
Regular warehouse operators must load out wheat and oats at specified
daily rates, which differ depending upon the mode of transportation
provided by warehouse receipt holders. Load out must begin on the third
business day following receipt of loading orders from the receipt
holder or on the day after the transportation equipment has been
constructively placed, whichever occurs later. Regular warehouse
operators are required to load out wheat and oats consecutively without
giving preference to products owned by the operator over the products
of others and without giving preference to one depositor over another.
The operator must in-load products into the warehouse consecutively in
the order in which they arrive at his warehouse at specified minimum
daily rates pursuant to in-loading orders previously received so far as
the warehouse capacity for grain and grade permits.
An operator of a regular shipping station for corn or soybeans is
required to begin loading out product within three business days of the
operator's receipt of loading orders and cancelled shipping
certificates from a shipping certificate holder. A shipping station
operator must load out corn or soybeans at the station's registered
daily loading rate, giving preference to takers of futures delivery.
Proposed Amendments
The CBT is proposing to amend its wheat contract as follows:
(1) The locational price differential for delivery of wheat at
Toledo would be changed to par from the two-cent-per-bushel discount
currently applicable to deliveries at that location.
(2) The location price differential for delivery at St. Louis would
be increased to a premium of 10 cents per bushel from the current 8
cents per bushel premium.
(3) The quality price differential for delivery of U.S. No. 1 grade
northern spring wheat would be changed to a premium of 3 cents per
bushel from par as presently specified in the contract.
(4) U.S. No. 2 grade northern spring wheat would be deliverable at
par, rather than at a one cent per bushel discount as currently
specified.
(5) Speculative position limits would be reduced during the last
five trading days in the March and May contract months to 350 contracts
and 220 contracts, respectively, from the existing spot month level of
600 contracts which applies uniformly to all contract months.
The CBT also has submitted proposed amendments that would delete
all of these CBT's existing provisions relating to the in-loading of
wheat and oats at regular warehouses. In addition, the proposed
amendments would extend to wheat and oats for futures delivery the
preferential treatment that receivers of corn and soybeans for futures
delivery currently receive when load-out is ordered (over the warehouse
or shipping station operator's cash commitments).
In addition, the proposed amendments would specify that, if a
lineup for loading out grain into barges from a particular regular
warehouse/shipping station includes both wheat and corn or soybeans or
both oats and corn or soybeans, then the minimum daily rate for loading
shall be equal to the highest loading rate applicable for any one
commodity in the line-up.\3\ To the extent that the proposed terms
applicable to the soybean and corn futures contracts differ from the
provisions of the Commission's Order of May 7, 1998, the Exchange's
request for approval of the proposed rule changes also constitutes a
request to the Commission to amend its Order accordingly. Publication
of these proposals, therefore, also constitutes notice of the proposed
amendment of the Commission's Order consistent with the proposed rule
amendments.
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\3\ For example, in St. Louis the minimum daily loading rate is
1 barge per day for soybeans and 3 barges per day for wheat. If both
soybeans and wheat are in the line-up, the St. Louis warehouse/
shipping station operator would be required to load a minimum of 3
barges per day total of beans and/or wheat.
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Finally, the Exchange is proposing, for both the wheat and oats
futures contracts, amendments which would change the last trading day
for all contract months to the business day prior to the fifteenth
calendar day of the month from the current last trading day which is
the business day prior to the last seven business days of the month.
Along with this amendment, the last delivery day for these contracts
would be changed to the seventh business day following the last trading
day rather the last business day of the month as currently specified.
The Exchange plans to implement the proposed amendments to the
wheat and oats futures contracts beginning with the March 2000 contract
month except for the proposed amendments to the loading provisions. The
latter proposals, which relate to the corn and soybeans futures
contracts as well as the wheat and oats futures contracts, would apply
to all grain loaded out against outstanding warehouse receipts on and
after January 1, 2000. In reviewing whether proposed amendments can be
applied to the terms of existing contracts, the Commission considers
the effect any such amendments may have on the value of existing
positions. In this regard, the proposed amendments to the wheat and
oats futures contracts will apply beginning with the March 2000
contract month which has not yet been listed for trading for either
contract. However, the proposed amendments to the soybean and corn
futures contracts will apply to certain currently-listed contract
months that expire after January 1, 2000 (as well as to all outstanding
warehouse receipts delivered on prior contract months for corn,
soybeans, wheat and oats). Accordingly, the Commission is seeking
public comment on what effect, if any, the proposed amendments would
have on the value of existing positions in the subject contracts.
The CBT, in support of the proposed amendment to provide for par
delivery of wheat at Toledo, states that, "[P]ar recognizes that
Toledo is the primary delivery point for the wheat futures contract and
that it is a key pricing point for soft red winter wheat." With
respect to the proposed increase in the premium for delivery at St.
Louis, the Exchange states that the change "maintains the current
differential spread between Toledo and St. Louis."
[[Page 65177]]
The Exchange notes that the proposed increase in the quality grade
differentials for U.S. No. 1 and U.S. No. 2 grade northern spring wheat
"will bring the grade differentials for Northern Spring Wheat in line
with the grade differentials for Hard Red Winter, Soft Red Winter and
Dark Northern Spring Wheat."
With respect to the proposal to introduce lower speculative
position limit levels during the last five trading days of the March
and May wheat contract months, the Exchange states that, "The purpose
of the decrease in speculative position limits is to satisfy CFTC
concerns on the adequacy of deliverable supply of wheat." The Exchange
further notes that, "while the decrease in the speculative position
limits in the last five business days has the potential to reduce
liquidity, the proposed [lower] limits would not have restrained
positions held by speculators in the last five years."
The Exchange states that the proposed last trading day for both
wheat and oats is the same as that for grain futures contracts and thus
"will standardize the last trading day for CBOT commodities of wheat,
corn, oats, soybeans, soybean meal and soybean oil." Finally,
according to the Exchange, the proposed load-out requirements to give
takers of delivery on the wheat and oats futures contracts preference
in loading grain over the warehouse operator's non-futures delivery
commitments "will allow delivery wheat to be more accessible to takers
of delivery and allow the futures to be more reflective of nearby cash
grain prices."
The Commission finds that the proposed changes in wheat
differentials are of major economic significance and the publication of
the CBT's proposed amendments as a whole is in the public interest and
will assist the Commission in its consideration of the amendments. In
particular, commenters are invited to analyze the following issues and
to submit written data, views or comments relating to the CBT's
proposals.
1. Would available deliverable supplies under the proposed contract
terms for wheat be sufficient to prevent or diminish price
manipulation, market congestion, or the abnormal movement of such
commodity in interstate commerce?
2. Do the proposed locational price differentials for delivery of
wheat at Toledo and St. Louis reflect cash market price differentials
for wheat at such locations relative to cash market values at Chicago?
3. Do the proposed quality price differentials for delivery of U.S.
No 1 and U.S. No. 2 grade northern spring wheat reflect cash market
pricing relationships between such wheat and other deliverable classes
and grades of wheat, particularly U.S. No. 2 grades soft red winter
wheat?
4. Are the proposed amendments to the corn, wheat, soybeans and
oats futures contracts concerning load out of grain against warehouse
receipts and shipping certificates consistent with cash market
practices for those commodities at the regular warehouse at the
contracts' delivery points? If not, to what extent, if any, will the
proposed load-out amendments limit deliverable supplies available for
the wheat, oats, corn and soybean futures contracts?
5. In light of recently announced plans concerning changes \4\ in
the ownership and/or operational control of the wheat futures
contract's delivery facilities, what effect, if any, will the increased
concentration in the control of delivery capacity resulting from these
changes have on the contract's susceptibility to price manipulation,
market congestion or the abnormal movement of wheat in interstate
commerce? To what extent do these changes reflect general trends in the
cash market?
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\4\ On March 25, 1998, Cargill, Inc. announced an agreement
under which The Andersons, Inc. would lease Cargill's two grain
handling facilities in Toledo/Maumee, Ohio and provide on-site
management of those facilities, in addition to the Andersons' own
grain-handling facilities in Toledo/Maumee. Cargill also announced
that it would provide marketing services for grain originated from
all facilities owned or leased by the Andersons in Toledo/Maumee. In
addtion, on November 10, 1998, Cargill announced the purchase of all
of Continental Grain Co.'s grain merchandising operations, including
Continental's existing wheat futures delivery facilities located in
Chicago and St. Louis.
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Copies of the proposed amendments will be a available for
inspection at the Office of the Secretariat, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington,
D.C. 20581. Copies of the proposed amendments can be obtained through
the Office of the Secretariat by mail at the above address or by
telephone at (202) 418-5100.
Other materials submitted by the CBT may be available upon request
pursuant to the Freedom of Information Act (5 U.S.C. 552) and the
Commission's regulations thereunder (17 C.F.R. Part 145 (1987)), except
to the extent they are entitled to confidential treatment as set forth
in 17 C.F.R. 145.5 and 145.9. Requests for copies of such materials
should be made to the FOI, Privacy and Sunshine Act Compliance Staff of
the Office of the Secretariat at the Commission's headquaters in
accordance with 17 C.F.R. 145.7 or 145.8.
Issued in Washington, DC, on November 19, 1998.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-31494 Filed 11-24-98; 8:45 am]
BILLING CODE 6351-01-M
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