Nov 11 (Reuters) - The lack of "convergence" of cash and
futures prices coming together at futures expiration in the CME
wheat contract is complicated.

Critics say ample soft red winter wheat supplies, low
interest rates, a futures delivery system focused on the upper
U.S. Midwest and the use of the contract's delivery instruments
as an investment -- known as the "cash-and-carry" trade --
contribute to the lack of convergence.

The following is an example of a cash-and-carry trade based
on Dec. 1, 2008, market conditions.

Wheat Delivery Economics on Dec. 1, 2008

CME Wheat futures prices:

March 2009 $5.2800

December 2008 $5.0975

+18.250 cents

Storage cost:

16.5 hundredths

of a cent per day for 91 days -15.015 cents

Profit on spread + 3.235 cents

Annualized Rate of Return:

3.235 cents/509.75 cents (profit on spread/Dec wheat cost)

x 365/91 (days in a year/three-month storage)

x 100 =

2.545% (financial rate of return)

This return is greater than LIBOR on Dec. 1, 2008: 2.22%

Source: Scott Irwin, economist, University of Illinois
(Reporting by Christine Stebbins)