A discount for higher vomitoxin levels is available, to enhance the threat of delivery, but at a discount which is intended to maintain the maximum 0.5 ppm vomitoxin level as the pricing standard of the contract. Other changes to the contract include, an alternate test weight of 340 grams/0.5 litre (56 lbs/bushel) being deliverable at a $6.00/tonne discount (compared to the par deliverable grade of 352 grams/0.5 litre, or 58 lbs/bushel); the maximum deliverable level of sprouts being increased from maximum 5% to maximum 10%; and the new contract no longer making reference to the Canadian Grain Commission 3CRWS grade specification, but with all quality specifications now explicitly stated within the contract.
The par deliverable maximum vomitoxin level was set to meet or exceed the desired quality for the majority of end users. An alternate maximum delivery level was added at a significant discount to still support the threat of delivery even during "poor" quality years. Industry survey results suggest that the change from 2.0% fusarium, specified in the existing contract, to 0.5 ppm vomitoxin (specified in the July 2003 and on contracts) reflects a premium of between $10.00/tonne and $20.00/tonne, depending on the end user and potential available supplies of wheat with low levels of vomitoxin for blending. The additional discounted deliverable test weight and the change in maximum sprouts is expected to have little effect on the futures price at which the contract will trade according to industry sources. Since these changes to the contract better reflect the bulk of the activity in the underlying cash market, basis stability and predictability is expected to improve.
The changes to the contract specifications should be taken into consideration when taking outright positions or spread positions involving the July 03 and out contracts.
