During 2008 extreme price volatility in grain markets led to country elevators incurring unprecedentedly large margin calls on their futures hedges. As a result elevators’ traditional liquidity sources and lines of credit were stretched to breaking point. This article explores the...

Cash and futures prices should reach equality, or converge, upon contract maturity. Traders can impose convergence during the delivery month through arbitrage behavior: either making or taking delivery on futures contracts. If convergence is not predictable, a futures market fails to provide a...

In 1997 the Chicago Mercantile Exchange replaced its live hog futures contract with a cash settlement mechanism based on a Lean Hog Index. Although cash settlement was expected to increase the use of the contract as a hedging tool, producers and packers are concerned that convergence between...

Cash and futures prices should reach equality, or converge, upon contract maturity. Traders can impose convergence during the delivery month througharbitrage behavior: either making or taking delivery on futures contracts. If convergence is not predictable, a futures market fails to provide a...

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...

It is well documented that “unanticipated” information contained in USDA crop reports induces large price reactions in corn and soybean markets. Thus, a natural question that arises from this literature is: To what extent are futures hedges able to remove or reduce increased price risk...