Market Matters Blog

CME Group announced on Friday that it issued an erroneous report on wheat available for physical settlement of futures contracts. At 4 p.m. on Thursday, CME said there were 146 shipping certificates registered, but at 5:46 p.m. corrected the report to reflect another 2,000 shipping certificates from the Andersons' Conant (Maumee, Ohio) and Illinois facilities.

That error is the equivalent of five Panamax ships of soft red winter wheat, roughly 10 million bushels, and traders that used the initial data to place trades got burned by the revision.

"And the spread's getting pulverized today because of it," said Tregg Cronin, a market analyst for CHS Hedging Inc. "The December-to-March Chicago wheat calendar spread is just getting -- I mean it's down 25% on the day."

CME said in a press release it will assume responsibility for the trading losses associated with the reporting error, however, it's unclear what those may be.

The bigger factor in the spread's price action, however, is likely the decreasing water levels on the Mississippi River, Cronin said. Barge supplies are tight as the grain terminals on the Mississippi River rush to send everything downriver before water levels become prohibitively low.

"That's had a big effect, and I would argue a majority of the reason why we've seen deliveries," Cronin said. "If the river were operational and everything, there'd be demand for owning those receipts and I don’t think you would have seen it blow out quite as bad as it was. Whether or not any of that was tied to the Andersons and the misreporting, it's hard to say, but that's why it's taken on so much focus because the river is in such rough shape."

DTN Senior Analyst Darin Newsom agrees the bigger picture is the large number of delivery registrations, reflective of the overall lack of demand that prompted commercial owners to move supplies into storage.

"Why the lack of demand? A couple of different reasons: U.S. wheat is still too high priced on world export market, particularly with the recent strength of the U.S. dollar. And second, low river levels are making it difficult to move grain to Gulf ports. Is the boo-boo affecting trade in Chicago wheat Friday? Maybe a little as the Dec-to-March carry continues to strengthen. Does it change the long-term fundamental outlook of the market? No, not really. The old-crop outlook has been neutral to bearish for some time now, and this doesn’t change that," Newsom said.

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