Open interest in the MGE’s cash-settled Soft Red Winter Wheat Index (SRWI) futures has ballooned, jumping from zero on Sept. 25 to 1,258 contracts as of Oct. 16. Traders say the burst of activity for the long moribund grain “index” contracts is directly tied to the travails at the CBOT, its parent the Chicago Mercantile Exchange and its regulator, the CFTC.

Commercial grain companies have complained for more than two years that the CBOT wheat contract has broken down as a hedging tool, saying Wall Street investment flows that have inflated futures far above basic wheat supply/demand forces. The result — a lack of convergence between cash and futures prices at contract expirations, an essential condition for hedging — has also vexed the CME and CFTC. They have tried various ways including higher grain storage fees to encourage more grain to move out of storage and into marketing channels.

CFTC is considering unusual new “variable” storage rates for the CBOT wheat contract. CME wants to install the new rates from September 2010 — nearly a full year later than a target date suggested by a CFTC panel. Actual implementation is still up in the air — and remains the wild card on pricing and timing that lashed CBOT wheat spread traders harshly in the last month as speculation on future storage costs whipsawed many into big losses.