- What are variable storage rates?
- How are variable storage rates calculated?
- Why is VSR in place for wheat contracts?
- What are the limits to the price range of VSR?
- How will I know if VSR is going to trigger up or down during a specific period?
- When will VSR be in place for HRS wheat?
- How can I find out more about VSR?
1. What are variable storage rates?
Variable storage rates (VSR) are a market-oriented mechanism that uses the derived value of storage space to determine the daily payment from the holder of a shipping certificate to the issuer of a shipping certificate. Variable storage rates are in place on all physically delivered CBOT Wheat futures contracts.
2. How are variable storage rates calculated?
The VSR looks at nearby spreads relative to financial full carry. Spreads that average 80 percent of financial full carry or greater will trigger an increase in maximum allowable storage charges by 10/100s of one cent per bushel per day (approximately three cents per bushel per month) following the nearby delivery period. Conversely, nearby spreads that average 50 percent of financial full carry or less will trigger a decrease in maximum allowable storage charges by 10/100s of once cent per bushel per day following the nearby delivery period. Should nearby spreads average over 50 percent of financial full carry and less than 80 percent of financial full carry, the maximum allowable storage charges will remain the same as in the previous period.
3. Why is VSR in place for wheat contracts?
There was a large soft red winter crop harvested in 2008. This overwhelming supply resulted in very weak basis values in the countryside and concerns around convergence in Wheat futures. Many potential solutions were considered but ultimately VSR was implemented in 2010 to address the situation. When the market is flush with supply, the demand for storage space increases relative to the fixed amount of available storage, and the value of storage increases. If the physical storage costs are above the maximum storage charge allowed by the Exchange to carry shipping certificates, the cash price paid to farmers will remain significantly below futures (e.g., the basis will be weak) and the market could experience convergence issues.
Due to the specific dynamics in the wheat market, where good harvest years and/or large beginning stocks can quickly drain the market of readily available storage space, VSR is a useful tool.
4. What are the limits to the price range of VSR?
Currently, maximum storage charges cannot go below 16.5/100s of one cent per bushel per day (about five cents per bushel per month) in Wheat futures and KC HRW Wheat futures, or below 26.5/100s of one cent per bushel per day (about eight cents per bushel per month) in Hard Red Spring Wheat futures.
Technically, VSR does not have a ceiling. For a period in 2011, Wheat futures triggered up to a maximum of 20 cents per bushel per month due to a sizable harvest and large beginning stocks. Since then, Wheat futures have only seen maximums of 11 cents per bushel per month once in 2016 through 2018 and KC HRW Wheat futures have only seen maximums of 11 cents per bushel per month once in 2018 through 2019. However, the vast majority of the time, storage rates are at the minimum of five cents or eight cents per bushel per month.
5. How will I know if VSR is going to trigger up or down during a specific period?
The Exchange is transparent about where the spreads are trading relative to financial full carry. During any given observation period, the calculation and running percentage of full carry is published on our VSR website.
6. When will VSR be in place for HRS wheat?
Currently, the storage rate for HRS wheat is eight cents per bushel per month. The first evaluation period for HRS wheat will measure the September 2025 to December 2025 calendar spread relative to financial full carry during the period of July 21, 2025 to August 22, 2025, with the next possible adjustment to contract premium charges on September 19, 2025.
7. How can I find out more about VSR?
There are explanations, calculation examples and an updated history of storage rate changes available on our VSR website. If you have any further questions, please reach out to wheat@cmegroup.com.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
