* Wheat deliveries heavy but funds still active in futures
* Wheat futures up 23.6 pct during past 3 months
* CFTC approves plan to bring cash, futures in line
CHICAGO, Nov 30 (Reuters) - Heavy deliveries of wheat against the Chicago Board of Trade December contract on Monday highlight the sluggish pace of U.S. exports even as funds pour into the market, which they consider to be undervalued.
The delivery of 4,935 contracts, above trade estimates for 3,000 to 4,500 contracts, also brought fresh attention to the disconnect between prices for CBOT wheat futures and the cash market, referred to as the convergence issue.
In an effort to bring prices for futures and wheat in the cash market closer together during delivery, futures industry regulator the Commodity Futures Trading Commission on Monday approved a plan by CBOT parent, the CME Group, to introduce variable storage rates with the July 2010 contract.
The disparity in the two prices has raised complaints from the grain industry that CBOT wheat futures are no longer a viable hedging tool for entities involved in buying, processing and selling wheat within and outside the country.
"Definitely, there'll be more chatter about the convergence issue, which ever side you are on," said grains analyst Shawn McCambridge of Prudential Bache Commodities in Chicago.
"The exchange needs to do something soon to fix the problem as the authorities might run out of patience," he said.
CFTC Chairman Gary Gensler said last month that he didn't believe that the CME Group had figured out the root cause behind the lack of convergence in the CBOT wheat contract.
"The specifications of the contract are not accommodating all of these additional players in a way that allows convergence at delivery," said Rich Feltes, senior vice president of MF Global Research.
CBOT WHEAT UP DESPITE DELIVERIES
Large deliveries, which indicate that owners of a commodity do not want to hold on to the product, are often bearish for futures because they show that it is easy to source supplies.
But CBOT futures prices continued to rise, rallying 3.4 percent on Monday.
Heavy buying by investment-speculative funds has pushed futures prices higher even as the CBOT December wheat contract WZ9 nears its expiration date, a time when cash wheat and the futures market are supposed to trade at around the same price.
First-day deliveries against the CBOT September wheat contract were 5,646 lots, and wheat prices have risen 23.6 percent since then.
Rising wheat prices have hurt U.S. wheat on the export market.
"You cannot get anybody to buy it," a trader at the Chicago Board of Trade said. "They keep tendering but we do not see the business."
Egypt, the world's largest wheat buyer, picked up another 300,000 tonnes of wheat last week, bypassing U.S. supplies for Russian and French offerings. The lone U.S. wheat bid in the Egyptian tender was priced at $225.40 per tonne, $24.40 to $26.65 higher than the winning entries.
Cash prices in Toledo, Ohio, a delivery market for soft red winter wheat, were $5.02-1/2 a bushel on Monday, 65 cents below the futures market price.
"This is a case where our commodity markets, which historically have functioned as risk management tools, are increasingly being viewed as asset classes," Feltes said. "They are not driven by the fundamentals but more so by how ownership in wheat relates to another basket of assets." (Reporting by Mark Weinraub; editing by Jim Marshall) ((email@example.com; +1 312 408 8587; Reuters Messaging: firstname.lastname@example.org)) ((For help: Click "Contact Us" in your desk top, click here [HELP] or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: email@example.com ; +1 646-223-5546))