2008-04-28 — bloomberg.com
We have a fundamental problem with the markets,'' said Kevin McNew, president of researcher Cash Grain Bids Inc. in Bozeman, Montana, and a former Montana State University economist. ``It is very difficult to operate a grain business when the cash prices are below the futures'' by such a wide margin, he said.
The price gap should converge when futures contracts expire and deliveries are settled. Instead, the average premium for CBOT wheat has quadrupled in two years to 40 cents a bushel, compared with 10 cents the prior five years, McNew said.
This seems like an artificial problem... if farmers could pay contract costs out of back-end proceeds, it seems like it could be eliminated. In other words they could lock in higher profits and pay for the hedging expenses essentially on exchange credit (guaranteed by the contracts themselves).
This needs to be fixed -- it is very bad when futures markets diverge from real markets, since the function of futures markets is to make the real ones more efficient.
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