Commodity Spot and Futures Not Converging at Expiration

Posted by Bull Bear Trader | 3/28/2008 10:42:00 PM | , | 0 comments »

As reported at the NY Times, the futures contracts for corn, wheat and soybeans have expired at a price that was higher than that day’s cash spot price, often much higher. Both the exchanges and academics studying the matter are confused - but have theories, of course. Some explain "shocks to the system", such as larger food demand and uncertainty regarding commodity supplies. Others blame new players in the booming commodities markets: hedge funds, pension funds, and index funds. The contracts themselves are also being blamed, causing some to suggest that everything be settled based on a cash index. Ironically, arbitragers have not stepped in, at least not to the point of correcting inefficiencies. Odd indeed.