The Chicago Mercantile Exchange announced Tuesday that it planned to reintroduce a grain sorghum futures contract with trading expected to start on Aug. 24.
A grain sorghum contract was tried by the Chicago Board of Trade and the Kansas City Board of Trade in the early 1970s, but suffered from a lack of liquidity. In other words, very few traders used it, preferring to stick with their familiar practice of hedging against the CBOT corn futures contracts.
WHAT’S DIFFERENT
According to the executive summary of a white paper on the grain sorghum contract, the proposed sorghum contract would address some of the reasons traders eschewed the original contract by quoting it “as a differential to the comparable corn futures delivery month, rather than solely as a flat-price grain sorghum futures instrument, with the aim to leverage the liquidity of the existing corn futures into grain sorghum futures without leaving sorghum subordinate to corn as a pricing proxy.”
The idea is to “provide the opportunity to improve the price discovery processes, hedging effectiveness and basis clarity for physical cash grain sorghum markets,” the white paper said.
The proposed contract also acknowledges that Kansas is the major grain sorghum state by using “an underlying Kansas-based delivery system in the Western Corn Belt,” the white paper said. Using the rail delivery system already in place for Hard Red Winter Wheat, “a reintroduced grain sorghum futures contract delivery system would more closely match the flow of US grain Sorghum to primary export markets at the Texas Gulf, Center Gulf and Mexico, with the possibility of extending into the Pacific Northwest when economics justify this movement.”
Current plans call for the contract to be based on US No. 2 grain sorghum, use the standard 5,000-bushel contract size with contract months aligned with corn futures and physical delivery through shipping certificates cleared through CME Clearing, the white paper said.
ANTICIPATED EFFECTS
With a successful reintroduction of a CME grain sorghum futures contract, producers and end users would have a better forward pricing mechanism and a set of risk management tools, the white paper said. Country elevators and terminal merchandisers would have a hedging mechanism that is better suited to managing the risks in the cash markets, the white paper said.
Exporters and importers would benefit from improved supply chain planning, along with more effective means to manage risk tied to freight, destination values and China-driven demand shocks, the white paper said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $238.29 per cwt to $252.00, compared with last week’s range of $248.00 to $256.91 per cwt. FOB dressed steers and heifers went for $382.47 per cwt to $388.86, compared with $389.00 to $400.06.
The USDA choice cutout Tuesday was down $3.19 per cwt at $366.91 while select was down $1.22 at $354.23. The choice/select spread narrowed to $12.68, from $14.65 with 127 loads of fabricated product and 34 loads of trimmings and grinds sold into the spot market.
The USDA-listed the daily weighted average wholesale price for fresh 90% lean beef as $460.10 per cwt, and 50% beef was $158.00.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.18 to $1.33 a bushel over the Sep corn contract, which settled at $4.52 1/2 a bushel, up $0.03.
The CME Feeder Cattle Index for the seven days ended Monday was $356.22 per cwt, down $3.49. This compares with Tuesday’s Aug contract settlement of $349.40, down $2.60.