Poor Convergence Performance of CBOT Corn, Soybean and Wheat Futures Contracts: Causes and Solutions

The lack of consistently acceptable convergence performance for Chicago Board of Trade (CBOT) corn, soybean, and wheat contracts since late 2005 has been widely discussed (e.g., Henriques, 2008).1 Convergence performance is summarized in Figure 1, depicting delivery location basis levels on the first delivery date of each contract for the three commodities over January or March 2000 through March 2009. Extended periods of lack of convergence since late 2005 are obvious, although variable over time and by commodity. Performance has been consistently weakest in wheat, with futures prices at times exceeding delivery location cash prices by $1.00/bu., a level of disconnect between cash and futures not previously experienced in grain markets.