Futures Need a Fix: The soft red wheat futures market is a prime example of a broken system that no longer provides risk protection

摘要

There is an old saying that "if it ain't broke, don't fix it." But what if something is broken? How do you go about fixing it if you don't know how, or you know how but don't have the abilities required? This is the problem facing the Chicago soft redwheat (SRW) futures market as it stands as a poster child of what has gone wrong with exchange traded futures over the last few years. BROKEN BASIS. The national average SRW basis has become a train wreck. To calculate basis I use the DTN National SRW Index minus the front-month futures contract. And as the accompanying chart shows, this price relationship between cash and futures has collapsed in recent years.