Sunday, April 21, 2024

Expand the delivery territory, level the playing field

USRPA responds to the Chicago Mercantile Exchange

By Dwight Roberts
President and Chief
Executive Officer

Last month, the Chicago Mercantile Exchange (CME) continued to gather feedback from throughout the rice industry with regard to the hypothetical contract changes for the rough rice futures contract.

These changes include the following: 1) increase storage charges to improve convergence from 34/100 cents-per-day to 40/100 cents-per-day, 2) expand the delivery territory to include Mississippi, Crittenden, Lee and Phillips Counties in Arkansas, while allowing deliveries from facilities on either side of the Mississippi River from approximately the Missouri and Arkansas state lines in Mississippi County and 3) change the delivery instrument from a warehouse receipt to a shipping certificate. Final public comment period closed on March 9, 2012, and, as of this writing, there has not been any announcement on a decision.

New Players In The Game

What does this mean to rice farmers? The US Rice Producers Association feels it is of extreme importance and responded to the request from the CME stating the organization’s board of directors fully supports all three changes under consideration.

Of particular interest is expanding the delivery territory. Why not expand from the state line with Missouri all the way to the Louisiana state line or mile marker 531? Sooner or later demand will pick up, and the expansion of delivery would allow more options against futures sales by farmers, if necessary, thereby making the hedge positions more useable for more people.

New players getting into the game, especially the major grain trading businesses who are experienced with trading basis, have access to credit lines, etc., bring a whole new angle that can only help rice farmers. Major grain businesses have been fenced out of the delivery process since the rice futures contract from the beginning. Currently, this ability is concentrated in far too few hands and, in the opinion of the US Rice Producers Association, facilitates activity that may border on monopoly to the virtual exclusion of the farmers who are the intended beneficiaries of rice futures in the first place.

More players in the market should yield more competition and encourage the needed convergence in cash and futures. It is important that all three changes be implemented, as they can only help in leveling the playing field for everyone who uses rice futures. Due to its relatively small size, the rice farming industry needs more involvement and alternatives.

Taking Steps Long Overdue

Today’s market is far different than the past when the river had little rough rice traffic on it, but now rough rice totals more than 40 percent of our exports. Unfortunately, it was said more than once by some that rice farmers do not understand these technical changes, yet we all know that without farmer efforts there never would have been a rough rice futures contract in the beginning.

The steps taken by the CME to resolve a crippling situation of our system is long overdue. At the moment, the only certified warehouses are owned and controlled by cooperatives and/or private merchandisers. Expanding the territory, gaining new players, alternatives, increased competition sounds so….so American.

We appreciate and applaud the CME for addressing these positive potential changes to the rice futures contract. They can only benefit the broad market and encourage it to be used more widely by rice farmers in all Southern states.

In the meantime, we will keep our fingers crossed while waiting for the final decision!

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