Variable Storage Rate or “VSR” calculations for the CME Kansas City Hard Red Winter Wheat futures contract have begun. The Chicago Mercantile Exchange (CME) provides an ongoing daily record of how VSR calculations are progressing for the MARCH 2018 to MAY 2018 futures contract spread in comparison to what the CME calculates to be “Financial Full Carry” for wheat in storage.
Following is a statement from the CME regarding the Variable Storage Rate mechanism and its application:
“The Exchange will implement the VSR mechanism with an initial observation period beginning on December 19, 2017 and ending on February 23, 2018, evaluating the 2018 March – May KC HRW Wheat calendar spread relative to financial full carry with any changes to the storage rate effective on March 18, 2018. The storage rate will remain at 19.7/100s of one cent per bushel per day until the VSR mechanism triggers a change to the storage rate, at which point the storage rate will become either 16.5/100s of one cent per bushel per day if the storage rate is triggered down or 26.5/100s of one cent per bushel per day if the storage rate is triggered up. The seasonal storage rate currently in place for the Contracts will be suspended in lieu of the VSR mechanism, meaning the rate of 19.7/100s of one cent per bushel per day will remain in place until triggered up or down by the VSR mechanism.”
These VSR Calculations for both Kansas City HRW Wheat futures and Chicago Wheat futures are available a the following web address:
These preliminary VSR calculations with the MARCH-MAY 2018 KC HRW Wheat futures spread running at an average of 90.40% of Financial Full Carry for the December 19, 2017 through January 4, 2018 period would indicate that the CME will be increasing its storage rate used in the VSR calculation. Of course, the long term average through February 23, 2018 will provide the final determination of whether such changes are made.
This potential storage rate increase would be from the starting value of $0.00197 /bu/day ($0.0591 /bu/30 days) up to $0.00265 /bu/day ($0.0795 /bu/30 days) for the March-May 2018 period on wheat delivered against the MARCH 2018 CME KC HRW Wheat futures contract.
Note that the CME Chicago Wheat futures carrying charge is currently at $0.00365 /bu/day ($0.1095 /bu/30 days), and that the running average percent of full carry for Chicago wheat is only 51.42% for the same period.
Following are the KC HRW Wheat futures VSR calculations for through Thursday, January 4, 2018 with added formatting from Kansas State University Extension Agricultural Economics: