When the CBOT changed the delivery system for corn and soybean futures with the 2000 contracts, it was a response to the changing dynamics of those product markets. Whereas delivery of corn and soybeans against futures contracts historically took place in the Chicago delivery region, storage capacity in the Chicago area declined significantly during the 1980s and 1990s. That decline was a result of the elimination of government storage programs, as well as the growth of on-farm storage of corn and soybeans.

As demand for grain has evolved, the Chicago area has become less important to the cash part of the business. The Illinois Waterway Delivery System, however, represents a significant portion of the cash grain trade. Thus, the new delivery system provides for a more stable relationship between the cash prices and futures prices.

Under the CBOT delivery system, delivery on corn futures contracts can take place along a 204-mile section of the Illinois River. Soybean delivery can take place along a 403-mile section of the Illinois and Mississippi River. This places the delivery territories for both commodities in the heart of the U.S. corn and soybean production and consumption region.

The CBOT delivery system enables corn and soybean futures contracts to accurately reflect the U.S. cash market for both products. This facilitates the convergence between futures prices and cash prices through a contiguous, centralized, and transparent pricing system. The delivery system, implemented in 2000, incorporates changes recommended by market participants, the CBOT, and the CFTC in response to these new dynamics of the corn and soybean markets.

Since facilities along the northern Illinois River are primarily throughput, handling large quantities of grain with minimal storage capacity, shipping certificates better represent the cash market in the delivery territory than warehouse receipts. Shipping certificates are commonly used in instances where commodities are not held in storage for long time periods, while warehouse receipts are used as title to stored commodities.

Convergence

The main purpose of delivery systems in the futures markets is to ensure convergence of cash and futures prices during the delivery month, not to be a commercial source of supply of the underlying commodity. The latter is the purpose of cash markets.

The corn and soybean delivery system does not change cash market prices. Instead, more producers, processors, livestock feeders, exporters, and other market participants throughout the United States should have a more stable relationship between the prices quoted in their cash market and futures price.

Capacity

Facilities included in the Illinois Waterway Delivery System for corn will potentially provide a maximum delivery capacity of more than 152 million bushels and for soybeans a maximum delivery capacity of 218 million bushels. Also, the shipping certificate system will enable the delivery capacity to be continuously replenished from the natural flow of grain, minimizing potential market manipulation concerns and reducing the possibility of quality deterioration.

Ownership Dispersion

The Illinois Waterway Delivery System offers a remarkable dispersion of ownership in light of the consolidation that is occurring in the grain industry. Using a standard statistical measure of concentration, the ownership of shipping facilities for the corn and soybean delivery system is more than 10 percent less concentrated than the ownership of delivery warehouses under the prior delivery system.

Availability

The delivery area along the Illinois Waterway also has a notable history of availability. According to U.S. Army Corps of Engineers data, weather problems on the waterway have seldom been a significant factor affecting grain transportation—unlike on the Great Lakes, which are officially closed approximately four months of the year. Extending the delivery area to Chicago-Burns Harbor provides two additional benefits. Alternative rail and vessel transportation is available and the competition between domestic and export users is intensified.