Corn Futures Deliveries : Why? When? So What?

For grain and oilseed futures, deliveries facilitate convergence by allowing for arbitrage between the physical commodity and the “paper” (i.e., futures) markets. A sizeable literature has looked at deliveries to answer questions about price convergence and about the value of options embedded in commodity futures contract. The present paper focuses instead on explaining what drives deliveries and their timing, and it investigates possible feedback on futures prices when deliveries happen. We first explain the delivery process in detail, including the key role of Shipping Certificates. We then introduce the concept of Delivery Value Equivalent (DVE) as a framework for the decision-making process of whether a trader should “go for delivery” or not. Utilizing Chicago Board of Trade #2 Yellow Corn futures prices, New Orleans CIF basis quotes, and Delivery Zone 3 barge rates for all 576 delivery days in a 10-year period spanning January 2011 to April 2021, we use the DVE framework to elucidate why and when corn futures deliveries take place and their magnitudes, and to ask whether the publication by the exchange of information regarding intentions to deliver affects calendar spread prices. We show theoretically and empirically that the difference between the New Orleans basis and the DVE is a significant factor in explaining the occurrence and the number of deliveries. Next, we document that physical market conditions and inventory levels (proxied by whether the market carry at the start of the delivery period) are essential to explaining whether deliveries (and thus convergence) begin early or late in the delivery period. Last, we do not find evidence that the release of information regarding new Shipping Certificates (which takes place between the close of the previous-day trading session and the opening of the next-day overnight trading session) impacts the nearby calendar-spread close-to-open return