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The HC Commodities Podcast
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The Nonconvergence of Wheat Futures Markets
In 2005, grain futures markets in Chicago started to not converge. The nonconvergence was alarming and no one could quite figure out why. A US Senate permanent subcommittee that investigated this in 2009 said it was all due to the index funds. But once we saw that that was in disweak of librium, we worked out some models that basically explained the episode,. Not the index funds but a simple disequilibrium between what the market thought was the value of storage in grain delivery elevators.
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