New USDA ERS Study on “Non-Convergence in Domestic Commodity Futures Markets…”

Following is a report released by the USDA Economic Research Service (ERS) ( concerning noncovergence in U.S. domestic commodity futures markets. The authors are the leading USDA and University experts in this field of study – and provide arguably the best information available as to why the problem of non-convergence of agricultural commodity futures and cash prices occurred, and what can be done in the future to encourage convergence to occur in the future.


Non-Convergence in Domestic Commodity Futures Markets: Causes, Consequences, and Remedies

by Michael K. Adjemian, Philip Garcia, Scott Irwin and Aaron Smith

ERS Economic Information Bulletin number 115, August 2013

Web references:



During most of 2005-10, the price of expiring U.S. corn, soybeans, and wheat futures contracts settled much higher than corresponding delivery market cash prices.  Because futures contracts at expiration are commonly thought to be equivalent to cash grain, this commodity price non-convergence appeared inconsistent with the law of one price.  In addition, sustained non-convergence concerns market participants, exchanges, and policy-makers because it can make hedging less effective, send confusing signals to the market, threaten the viability of a contract, and ultimately lead to a misallocation of agricultural resources.  This report summarizes prominent theories that have been offered to explain non-convergence, including a new model that explains how the structure of a competitive delivery market can generate a positive expiring basis. The data support this delivery market theory over alternative explanations. Finally, we discuss various policy levers thathave been offered to address non-convergence, as well as their likely impacts.

Grain piles in Australia (Source:

The Chicago Board of Trade (Source:


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