[Federal Register Volume 63, Number 227 (Wednesday, November 25, 1998)]
[Notices]
[Pages 65175-65177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31494]


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COMMODITY FUTURES TRADING COMMISSION


Chicago Board of Trade: Proposed Amendments to the Wheat, Oats, 
and Soybean Futures Contracts Modifying Certain Delivery Specifications 
of the Wheat Futures Contract, Amending Rules Governing Load Out 
Against Warehouse Receipts for Wheat and Oats and Shipping Certificates 
for Corn and Soybeans, and Revising the Last Trading and Delivery Days 
for the Oats and Wheat Futures Contracts

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed contract market rule change.

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SUMMARY: The Chicago Board of Trade (CBT or Exchange) has submitted 
proposed amendments to its wheat futures contract which will modify the 
locational price differentials for delivery at Toledo and St. Louis, 
change the quality price differentials for U.S. No. 1 and U.S. No. 2 
grade northern spring wheat, and reduce the speculative position limits 
for the March and May contract months during the last five trading 
days. In additional, the Exchange is proposing amendments that will 
modify the load-out provisions for the wheat, corn, oats and soybean 
futures contracts and which will change the last trading day and the 
last delivery day for all contract months for the wheat and oats 
futures contracts. The Commission has determined to request pubic 
comment on the proposed amendments based upon its finding that the 
proposed amendments are of major economic significance within the 
meaning of section 5a(a)(12) of the Commodity Exchange Act (Act) and 
that their publication is in the public interest and will assist the 
Commission in considering the views of interested persons.

DATES: Comments must be received on or before December 28, 1998.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. In 
addition, comments may be sent by facsimile transmission to facsimile 
number (202) 418-5521 or by electronic mail to [email protected]. 
Reference should be made to the CBT grain futures contracts' delivery 
specification proposals.

FOR FURTHER INFORMATION, CONTACT: Please contact Fred Linse of the 
Division of Economic Analysis, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581, 
telephone (202) 418-5273, facsimile number (202) 418-5527, or 
electronically at [email protected].

SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission 
(Commission), by letter dated December 19, 1996, issued a request to 
the Chicago Board of Trade (CBT) to undertake a study of the delivery 
specifications of its wheat futures contract and to submit its findings 
to the Commission by April 18, 1997, 120 days from the date of the 
Commission's request (see 61 FR 67998 (December 26, 1996)).\1\ The CBT 
responded to the Commission's request by letter dated April 18, 1997, 
providing a status report to the Commission of its actions.\2\ The 
Commission on July 8, 1997, solicited public comment on the delivery 
specifications of the CBT's wheat futures contract (62 FR 36499) to 
assist it in considering the concerns identified in the Commission's 
December 19, 1996 notification. The CBT on October 21, 1998, submitted 
to the Commission for its review proposed amendments to its wheat 
futures contract.
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    \1\ The request was made in conjunction with the Commission's 
notification to the CBT under Section 5a(a)(10) of the Act, 7 U.S.C. 
Sec. 7a(a)(10), that the delivery terms of the CBT corn and soybean 
futures contracts no longer accomplish the statutory objectives of 
``permit[ting] the delivery of any commodity . . . at such point or 
points and at such quality and locational price differentials as 
will tend to prevent or diminish price manipulation, market 
congestion, or the abnormal movement of such commodity in interstate 
commerce.'' This request was based on the continuing diminution of 
the role of terminal markets in the cash market for grain, the 
increasing shift of the locus of the main channels of commodity 
flows away from the delivery points on the grain contracts, 
particularly the par delivery point of Chicago, and the resulting 
precipitous drop in regular warehouse storage capacity at the 
Chicago delivery point. For corn and soybeans, the Commission on 
November 7, 1997, issued an Order changing and supplementing under 
Section 5a(a)(10) of the Act, 7 U.S.C. 7a(a)(10), the delivery terms 
of those futures contracts (62 FR 60831 (November 13, 1997)), and, 
on May 7, 1998, approved further changes to the corn and soybeans 
futures contracts' delivery terms (63 FR 26575 (May 13, 1998)).
    \2\ The CBT reported that, although a Task Force appointed by 
the CBT Board of Directors had recommended certain changes to the 
delivery terms of the wheat futures contract, the Board had decided 
to refrain from acting on those recommendations at that time and 
determined instead to conduct market research to determine whether a 
broader review of the contract, not limited to its delivery terms, 
should be undertaken.
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Current Contract Terms

    The wheat futures contract's current terms provide for the delivery 
of warehouse receipts representing U.S. No. 1 or U.S. No. 2 grade soft 
red winter wheat, dark northern spring wheat, northern spring wheat, or 
hard red winter wheat in store at CBT-approved

[[Page 65176]]

(regular) delivery warehouses located in Chicago, Toledo and St. Louis. 
(Only soft red winter wheat is deliverable at St. Louis.) U.S. No. 2 
grade soft red winter wheat, U.S. No. 2 dark northern spring wheat, 
U.S. No. 2 hard red winter and U.S. No. 1 northern spring wheat are 
deliverable at par. U.S. No. 1 grade soft red winter wheat, dark 
northern spring wheat, and hard red winter wheat are deliverable at a 
premium of three cents per bushel. U.S. No. 2 grade northern spring 
wheat is deliverable at a discount of one cent per bushel. Currently, 
wheat is deliverable in Chicago at par, in Toledo at a discount of two 
cents per bushel, and in St. Louis at a premium of eight cents per 
bushel.
    The oats futures contract calls for the delivery of warehouse 
receipts representing oats in store at regular warehouses in Chicago 
and Minneapolis/St. Paul.
    Beginning in the year 2000, the corn and soybean futures contracts 
will call for the delivery of shipping certificates providing for the 
loading out of corn at regular shipping stations in Chicago and on the 
northern Illinois River and the loading out of soybeans at regular 
shipping stations in Chicago, St. Louis, and on the Illinois River.
    Under the current delivery procedures for the wheat and oats 
futures contracts, warehouse receipt holders may require load out of 
wheat or oats from regular elevators into vessels, barges or rail cars. 
Regular warehouse operators must load out wheat and oats at specified 
daily rates, which differ depending upon the mode of transportation 
provided by warehouse receipt holders. Load out must begin on the third 
business day following receipt of loading orders from the receipt 
holder or on the day after the transportation equipment has been 
constructively placed, whichever occurs later. Regular warehouse 
operators are required to load out wheat and oats consecutively without 
giving preference to products owned by the operator over the products 
of others and without giving preference to one depositor over another. 
The operator must in-load products into the warehouse consecutively in 
the order in which they arrive at his warehouse at specified minimum 
daily rates pursuant to in-loading orders previously received so far as 
the warehouse capacity for grain and grade permits.
    An operator of a regular shipping station for corn or soybeans is 
required to begin loading out product within three business days of the 
operator's receipt of loading orders and cancelled shipping 
certificates from a shipping certificate holder. A shipping station 
operator must load out corn or soybeans at the station's registered 
daily loading rate, giving preference to takers of futures delivery.

Proposed Amendments

    The CBT is proposing to amend its wheat contract as follows:
    (1) The locational price differential for delivery of wheat at 
Toledo would be changed to par from the two-cent-per-bushel discount 
currently applicable to deliveries at that location.
    (2) The location price differential for delivery at St. Louis would 
be increased to a premium of 10 cents per bushel from the current 8 
cents per bushel premium.
    (3) The quality price differential for delivery of U.S. No. 1 grade 
northern spring wheat would be changed to a premium of 3 cents per 
bushel from par as presently specified in the contract.
    (4) U.S. No. 2 grade northern spring wheat would be deliverable at 
par, rather than at a one cent per bushel discount as currently 
specified.
    (5) Speculative position limits would be reduced during the last 
five trading days in the March and May contract months to 350 contracts 
and 220 contracts, respectively, from the existing spot month level of 
600 contracts which applies uniformly to all contract months.
    The CBT also has submitted proposed amendments that would delete 
all of these CBT's existing provisions relating to the in-loading of 
wheat and oats at regular warehouses. In addition, the proposed 
amendments would extend to wheat and oats for futures delivery the 
preferential treatment that receivers of corn and soybeans for futures 
delivery currently receive when load-out is ordered (over the warehouse 
or shipping station operator's cash commitments).
    In addition, the proposed amendments would specify that, if a 
lineup for loading out grain into barges from a particular regular 
warehouse/shipping station includes both wheat and corn or soybeans or 
both oats and corn or soybeans, then the minimum daily rate for loading 
shall be equal to the highest loading rate applicable for any one 
commodity in the line-up.\3\ To the extent that the proposed terms 
applicable to the soybean and corn futures contracts differ from the 
provisions of the Commission's Order of May 7, 1998, the Exchange's 
request for approval of the proposed rule changes also constitutes a 
request to the Commission to amend its Order accordingly. Publication 
of these proposals, therefore, also constitutes notice of the proposed 
amendment of the Commission's Order consistent with the proposed rule 
amendments.
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    \3\ For example, in St. Louis the minimum daily loading rate is 
1 barge per day for soybeans and 3 barges per day for wheat. If both 
soybeans and wheat are in the line-up, the St. Louis warehouse/
shipping station operator would be required to load a minimum of 3 
barges per day total of beans and/or wheat.
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    Finally, the Exchange is proposing, for both the wheat and oats 
futures contracts, amendments which would change the last trading day 
for all contract months to the business day prior to the fifteenth 
calendar day of the month from the current last trading day which is 
the business day prior to the last seven business days of the month. 
Along with this amendment, the last delivery day for these contracts 
would be changed to the seventh business day following the last trading 
day rather the last business day of the month as currently specified.
    The Exchange plans to implement the proposed amendments to the 
wheat and oats futures contracts beginning with the March 2000 contract 
month except for the proposed amendments to the loading provisions. The 
latter proposals, which relate to the corn and soybeans futures 
contracts as well as the wheat and oats futures contracts, would apply 
to all grain loaded out against outstanding warehouse receipts on and 
after January 1, 2000. In reviewing whether proposed amendments can be 
applied to the terms of existing contracts, the Commission considers 
the effect any such amendments may have on the value of existing 
positions. In this regard, the proposed amendments to the wheat and 
oats futures contracts will apply beginning with the March 2000 
contract month which has not yet been listed for trading for either 
contract. However, the proposed amendments to the soybean and corn 
futures contracts will apply to certain currently-listed contract 
months that expire after January 1, 2000 (as well as to all outstanding 
warehouse receipts delivered on prior contract months for corn, 
soybeans, wheat and oats). Accordingly, the Commission is seeking 
public comment on what effect, if any, the proposed amendments would 
have on the value of existing positions in the subject contracts.
    The CBT, in support of the proposed amendment to provide for par 
delivery of wheat at Toledo, states that, ``[P]ar recognizes that 
Toledo is the primary delivery point for the wheat futures contract and 
that it is a key pricing point for soft red winter wheat.'' With 
respect to the proposed increase in the premium for delivery at St. 
Louis, the Exchange states that the change ``maintains the current 
differential spread between Toledo and St. Louis.''

[[Page 65177]]

    The Exchange notes that the proposed increase in the quality grade 
differentials for U.S. No. 1 and U.S. No. 2 grade northern spring wheat 
``will bring the grade differentials for Northern Spring Wheat in line 
with the grade differentials for Hard Red Winter, Soft Red Winter and 
Dark Northern Spring Wheat.''
    With respect to the proposal to introduce lower speculative 
position limit levels during the last five trading days of the March 
and May wheat contract months, the Exchange states that, ``The purpose 
of the decrease in speculative position limits is to satisfy CFTC 
concerns on the adequacy of deliverable supply of wheat.'' The Exchange 
further notes that, ``while the decrease in the speculative position 
limits in the last five business days has the potential to reduce 
liquidity, the proposed [lower] limits would not have restrained 
positions held by speculators in the last five years.''
    The Exchange states that the proposed last trading day for both 
wheat and oats is the same as that for grain futures contracts and thus 
``will standardize the last trading day for CBOT commodities of wheat, 
corn, oats, soybeans, soybean meal and soybean oil.'' Finally, 
according to the Exchange, the proposed load-out requirements to give 
takers of delivery on the wheat and oats futures contracts preference 
in loading grain over the warehouse operator's non-futures delivery 
commitments ``will allow delivery wheat to be more accessible to takers 
of delivery and allow the futures to be more reflective of nearby cash 
grain prices.''
    The Commission finds that the proposed changes in wheat 
differentials are of major economic significance and the publication of 
the CBT's proposed amendments as a whole is in the public interest and 
will assist the Commission in its consideration of the amendments. In 
particular, commenters are invited to analyze the following issues and 
to submit written data, views or comments relating to the CBT's 
proposals.
    1. Would available deliverable supplies under the proposed contract 
terms for wheat be sufficient to prevent or diminish price 
manipulation, market congestion, or the abnormal movement of such 
commodity in interstate commerce?
    2. Do the proposed locational price differentials for delivery of 
wheat at Toledo and St. Louis reflect cash market price differentials 
for wheat at such locations relative to cash market values at Chicago?
    3. Do the proposed quality price differentials for delivery of U.S. 
No 1 and U.S. No. 2 grade northern spring wheat reflect cash market 
pricing relationships between such wheat and other deliverable classes 
and grades of wheat, particularly U.S. No. 2 grades soft red winter 
wheat?
    4. Are the proposed amendments to the corn, wheat, soybeans and 
oats futures contracts concerning load out of grain against warehouse 
receipts and shipping certificates consistent with cash market 
practices for those commodities at the regular warehouse at the 
contracts' delivery points? If not, to what extent, if any, will the 
proposed load-out amendments limit deliverable supplies available for 
the wheat, oats, corn and soybean futures contracts?
    5. In light of recently announced plans concerning changes \4\ in 
the ownership and/or operational control of the wheat futures 
contract's delivery facilities, what effect, if any, will the increased 
concentration in the control of delivery capacity resulting from these 
changes have on the contract's susceptibility to price manipulation, 
market congestion or the abnormal movement of wheat in interstate 
commerce? To what extent do these changes reflect general trends in the 
cash market?
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    \4\ On March 25, 1998, Cargill, Inc. announced an agreement 
under which The Andersons, Inc. would lease Cargill's two grain 
handling facilities in Toledo/Maumee, Ohio and provide on-site 
management of those facilities, in addition to the Andersons' own 
grain-handling facilities in Toledo/Maumee. Cargill also announced 
that it would provide marketing services for grain originated from 
all facilities owned or leased by the Andersons in Toledo/Maumee. In 
addtion, on November 10, 1998, Cargill announced the purchase of all 
of Continental Grain Co.'s grain merchandising operations, including 
Continental's existing wheat futures delivery facilities located in 
Chicago and St. Louis.
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    Copies of the proposed amendments will be a available for 
inspection at the Office of the Secretariat, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, 
D.C. 20581. Copies of the proposed amendments can be obtained through 
the Office of the Secretariat by mail at the above address or by 
telephone at (202) 418-5100.
    Other materials submitted by the CBT may be available upon request 
pursuant to the Freedom of Information Act (5 U.S.C. 552) and the 
Commission's regulations thereunder (17 C.F.R. Part 145 (1987)), except 
to the extent they are entitled to confidential treatment as set forth 
in 17 C.F.R. 145.5 and 145.9. Requests for copies of such materials 
should be made to the FOI, Privacy and Sunshine Act Compliance Staff of 
the Office of the Secretariat at the Commission's headquaters in 
accordance with 17 C.F.R. 145.7 or 145.8.

    Issued in Washington, DC, on November 19, 1998.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-31494 Filed 11-24-98; 8:45 am]
BILLING CODE 6351-01-M