Chicago Board of Trade: Proposed Amendments to the Wheat Futures Contract Regarding Vomitoxin in Deliverable Wheat

COMMODITY FUTURES TRADING COMMISSION

Chicago Board of Trade: Proposed Amendments to the Wheat Futures

Contract Regarding Vomitoxin in Deliverable Wheat

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed contract market rule change.

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SUMMARY: The Chicago Board of Trade (CBT or Exchange) has submitted

amendments to its wheat futures contract that would permit receivers of

wheat futures deliveries to require that wheat loaded out from delivery

warehouses have a vomitoxin content of no more than 5 parts per

million. The Commission has determined to request public comment on the

proposed CBT rule based upon its finding that the proposed rule is of

major economic significance within the meaning of section 5a(a)(12) of

the Commodity Exchange Act (Act) and that its publication is in the

public interest and will assist the Commission in considering the views

of interested persons.

DATE: Comments must be received on or before September 21, 1998.

ADDRESSES: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. In

addition, comments may be send by facsimile transmission to facsimile

number (202) 418-5521, or by electronic mail to [email protected].

Reference should be made to the CBT wheat futures contract vomitoxin

proposal.

FOR FURTHER INFORMATION CONTACT:

Please contact Fred Linse of the Division of Economic Analysis,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW, Washington, DC 20581, telephone (202) 418-5273, facsimile

number (202) 418-5527, or electronically at [email protected].

SUPPLEMENTARY INFORMATION: Currently, the CBT futures contract contains

no provisions relating to vomitoxin in deliverable wheat. The proposed

CBT amendments would provide the parties that receive delivery of wheat

under the futures contract may request that the wheat loaded out from

the delivery warehouse contain no more than 5 parts per million of the

fungus deoxynivalenol (vomitoxin). Under the proposed amendments, the

delivery receiver would be required to pay for inspection of the

delivery wheat for vomitoxin content, with such inspection being done

at the time of load out by the Federal Grain Inspection Service or by a

third party inspection service which is mutually agreeable to the

delivery receiver and the deliverer.

The Exchange plans to implement the proposed amendments on

September 1, 1999. Under the proposed implementation plan, CBT

registered warehouse receipts issued prior to September 1, 1999 will be

deliverable

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after that date only if the warehouse operator certifies on the

warehouse receipt that the delivery receiver may request that wheat

loaded out from the delivery warehouse have a vomitoxin content of no

more than 5 parts per million. Holders of warehouse receipts issued

prior to September 1, 1999 who request that the warehouse receipts be

reissued or endorsed to comply with the vomitoxin standard will be

liable to warehouse operators for a maximum of two cents per bushel as

compensation for the cost of bringing delivery wheat underlying such

receipts into compliance with the proposed standard. The Exchange has

noted that the September and December 1999 contract months have been

listed for trading with a special indicator to indicate that deliveries

against these contract months be subject to the proposed vomitoxin

limit, pending approval by the Commission. The price adjustment to

outstanding warehouse receipts will affect their price and might have

an effect on the pricing of existing positions in contract months that

currently are listed for trading. The potential of a proposed rule

change to affect a contract's pricing is one of the bases used by the

Commission in determining whether a proposed rule change is of major

economic significance within the meaning of section 5a(a)(12) of the

Act and must be published for public comment under that section of the

Act.\1\

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\1\ It should be noted that section 5a(a)(12) of the Act, which

requires the Commission to publish proposed rules of ``major

economic significance,'' does not define the meaning of that term.

Moreover, section 5a(a)(12) provides that the Commission's

determination that proposed exchange rules are of major economic

significance under that section is final and not subject to judicial

review. The Commission staff has interpreted the meaning of ``major

economic significance'' broadly as proposed rules which may have an

effect on the pricing of a contract, on the value of existing

contracts, on a contract's hedging or price basing utility, or on

deliverable supplies. Section 5a(a)(12) does not define rules of

``major economic significance'' based upon a specific dollar impact

on the economy or other such measures used in other statutes, such

as those used in determining whether an agency rule is a ``major

rule'' under 5 U.S.C. section 804(2).

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In support of the proposed amendments, the CBT reasons that the

amendments will provide certainty to market users regarding the maximum

level of vomitoxin in futures delivery wheat and will maintain the

integrity of the futures contract as a pricing and hedging medium. In

this regard, the Exchange notes that vomitoxin is associated with

gastrointestinal illnesses in humans and animals and is subject to

Federal Food and Drug Administration (FDA) advisory levels. The CBT

notes that the current FDA advisory level for vomitoxin is finished

wheat products to be consumed by humans is not more than 1 part per

million. For animals, the advisory level is no more than 10 parts per

million for cattle and chicken, with a recommendation that the

ingredients not exceed 50 percent of the diet, 5 parts per million for

swine, with a recommendation that the ingredients constitute no more

than 20 percent of the diet, and 5 parts per million for all other

animals with a recommendation that the ingredients not exceed 40

percent of the diet. The CBT indicates that the FDA determined not to

specify an advisory level for raw wheat used to produce finished wheat

products for human consumption, since wheat millers can reduce

vomitoxin in finished products from that found in raw wheat.

The Exchange notes that, in the wheat cash market, users and

merchandisers purchase wheat with a maximum vomitoxin guarantee when

there is concern about vomitoxin in the wheat crop or in carryover

stocks. The CBT indicated that, while the maximum level of vomitoxin

permitted in cash market transactions varies from year to year, the

proposed level of 5 parts per million falls within the range of maximum

levels accepted by buyers in recent years. The Exchange also noted that

the proposed vomitoxin standard is consistent with U.S. Department of

Agriculture regulations which specify a maximum vomitoxin content of 5

parts per million for wheat eligible for nonrecourse loans. Finally,

the CBT notes that, by segregating inbound wheat receipts, and by

blending and cleaning the wheat, warehouse operators will be able to

provide for adequate deliverable supplies of wheat in crop years when

vomitoxin levels are above 5 parts per million.

The proposed amendments were submitted pursuant to the Commission's

45-day fast track procedures for streamlining the review of futures

contract rule amendments and new contract approvals (62 FR 10434). In

light of the nature of the rule and the time of year, a longer comment

period is more appropriate than fast track consideration would permit.

Accordingly, the CBT has requested that the proposal be removed from

Fast Track consideration, and the Commission has determined to publish

for public comment notice of the availability of the proposed

amendments for 30 days.

Copies of the proposed amendments will be available for inspection

at the Office of the Secretariat, Commodity Futures Trading Commission,

Three Lafayette Center, 1155 21st Street, NW, Washington, DC 20581.

Copies of the proposed amendments can be obtained through the Office of

the Secretariat by mail at the above address, by telephone at (202)

418-5100, or via the internet on the CFTC website at ``www.cftc.gov''

under ``What's Pending''.

Other materials submitted by the CBT may be available upon request

pursuant to the Freedom of Information Act (5 U.S.C. 552) and the

Commission's regulations thereunder (17 CFR part 145 (1987)), except to

the extent they are entitled to confidential treatment as set forth in

17 CFR 145.5 and 145.9. Requests for copies of such materials should be

made to the FOI, Privacy and Sunshine Act Compliance Staff of the

Office of the Secretariat at the Commission's headquarters in

accordance with 17 CFR 145.7 or 145.8.

Any person interested in submitting written data, views, or

arguments on the proposed amendments, or with respect to other

materials submitted by the CBT, should send such comments to Jean A.

Webb, Secretary, Commodity Futures Trading Commission, Three Lafayette

Center, 1155 21st Street, NW, Washington, DC 20581 by the specified

date.

Issued in Washington, DC, on August 14, 1998.

Catherine D. Dixon,

Assistant Secretary of the Commission.

[FR Doc. 98-22413 Filed 8-19-98; 8:45 am]

BILLING CODE 6351-01-M