Sorghum Group Seeks CFTC Halt and Review of Proposed Chicago Futures Contract Amid Producer Concerns

Key Takeaways

A group of sorghum farmers is urging the CFTC to delay the Chicago Board of Trade’s new sorghum basis futures contract set for rollout on August 24.
Concerns focus on liquidity, delivery logistics, and the risk of a “false certification” by the CBOT, which could negatively impact farmers.
The National Sorghum Producers emphasize the need for a contract design that genuinely supports farmers and mitigates potential risks.

Concerns Over New Sorghum Futures Contract

A coalition representing sorghum farmers is advocating for the Commodity Futures Trading Commission (CFTC) to pause the upcoming rollout of a sorghum basis futures contract by the Chicago Board of Trade (CBOT), scheduled for August 24. The CBOT, owned by the CME Group, recently submitted a self-certification filing for this contract, but farmers are worried that its design could jeopardize their financial interests.

Leaders from the National Sorghum Producers (NSP) are calling for a thorough review of the contract’s compliance with federal standards. Among their concerns are liquidity issues, the appropriateness of physical delivery locations, and disparities in regional sorghum pricing that might hinder the contract’s effectiveness in aligning with cash markets. NSP Chair Amy France expressed that while the organization is not opposed to the contract itself, it must be thoroughly vetted to ensure it serves farmers’ best interests.

A two-page summary from NSP outlines several concerns that past sorghum futures contracts struggled to maintain trading volume. Without sufficient market-makers and commercial hedgers, farmers may face substantial price spreads and an increased risk of market manipulation. Furthermore, NSP points out that the eligible facilities for the contract stem from a Kansas City Hard Red Winter wheat contract, which may not represent the broader U.S. sorghum market adequately. Currently, the counties that make up this delivery network only account for 19.4% of average U.S. sorghum acreage, leaving over 80% of the crop potentially challenged by delivery issues.

The summary also highlights significant price divergence between Texas and Kansas sorghum, with Texas prices higher for 37 of the last 41 months. A comparison of cash-bid rates indicates an approximate 87-cent-per-bushel difference between values in South Texas and those in Kansas.

Additionally, NSP notes that its members were excluded from the fundamental design discussions regarding the contract and did not request the product from the Chicago Mercantile Exchange. For the contract to be fully functional, NSP insists on the need for a delivery structure that reflects the commercial reality of sorghum markets, clear safeguards to prevent issues, demonstrated liquidity, and better education for producers about the contract’s framework.

Self-certification allows exchanges to launch new contracts by notifying the CFTC at least one business day prior. Following the filing, the CFTC has the option to review whether the self-certification is valid and to gather further evidence as necessary. The CME Group first revealed plans for the sorghum basis futures contract on July 21, stating that the contract would enable physical delivery of grain from a network of Kansas elevators.

According to John Ricci, the CME Group’s managing director of agricultural products, this new contract aims to provide market participants with an effective instrument to hedge against basis risks, though past volatility in sorghum prices relative to corn underscores the need for careful planning and robust market structures.

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