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05-22-2012 10:59 PM
My thinking is that there will be longer periods of relatively thin trading which is more easily affected by computer trading, 'gaming', and mild surges of orders. No doubt computer models will need to be gradually 'retooled', but in what way?
The most popular explanation for late reversals today was unspecified inmprovements in weather in the future. OK, fair enough. And if the percip doesn't materialize as it is perceived at the moment?
The relatively clumsy and percipitous introduction of trading hours and a last minute reaction from the CFTC is certainly par for the course. I'm going to guess that producer/hedger activity will decline further, though I'll guess that sector results in a microscopic fraction of trade anyway.
Welcome to the funhouse.
05-23-2012 08:49 AM
Long time lurker first time poster.
Here is my 2 cents on the longer trading hours and they really piss me off.
The way I look at it for efficient price discovery it requires all participants to be sitting at the table at the same time. With the extended trading hours it now guarantees that most people wont be able to watch the markets 24 hours a day, except the huge institutional traders. This will have a number of consequences, firstly overall volume may increase but the trade being spread out over 21 hours the trade will be a lot thinner creating much more volatility. Now it some big event happens overnight the smaller investor has no way to react other than too have a sound sleep( I know this hasn't changes much from before, just magnified).
My argument would be too actually decrease the trading hours. For efficient price discovery it requires not only all participants sitting at the table, but all participants sitting at the table at the same time, with the the same opportunity to digest the reports and information. I know that this may hurt total volume as it may hinder people across the world from participating but perhaps another exchange would be a better option then.
The long and short of it is this will drive out the smaller trader/farmer as it will increase the volatility and the institutional traders will have too great of an advantage in regards too information. This may increase the volume but it will hurt efficient price discovery.
05-23-2012 09:04 AM
WK01: good thoughts, Goes along with my thoughts too. With the over night's the way they were AND the open pit times there wasn't a time when a person or entity couldn't make it work in their time zone.
The fundamentals haven't changed this week but the trading hrs have and it is starting to look like the traders are also having a hard time adjusting and therefore a price collapse due to the fact there is no way for the average small to medium sized broker to cover this 20+ hrs a day.
The CME is NOT intrested in any thing but # of trades and the resulting charge/profit resulting from that.
They could care less about the price of anything but their cut of the volume/trade.
Price discovery etc is just a smoke screen for the Goldman sux, JPM, etc to gain more control and profits.... remember ALWAYS follow the money trail.
05-23-2012 11:11 AM
There's always the potential for increased volatility the longer you trade something. There will be days where we're winners, and there will be days where we're losers. I'm more interested in seeing how this thing plays out when the first major crop report comes out which in my mind will be the June 30th Acreage Report. If I were a pit broker, I think I'd be updating my resume. By the time the pits open, the fireworks will more than likely already be over.
Ever since the electronic platform hit, commodity markets have become more and more like Vegas. This just seems one more step closer to Vegas style gambling. I'm waiting for the next implosion where a rogue trader makes a bet larger than his pocket book. I've really got to question the oversight governing bodies here. I don't know about anyone else, but it appears to me that things are getting worse in terms of the gambling than they were in 2008 rather than better. We now have longer trading hours, and the limits at least for corn have been expanded since 2008.
I would guess you are right that producer hedging will decline further, but I don't think heding in general will decline. Elevators and such still need the hedge protection. However, there seems to be quite a bit of disconnect between cash and futures. One could logically argue that all hedging will fall because end users will get tired of the game and just go to the cash market.
05-23-2012 12:55 PM
Gored, I had a similar thought. Grain trade in the US might just get pushed into a "produce by and for contract" commodity. Thus the futures exchanges get more disconnected from actual sellers and endusers.
I have wondered for a while if the trade volume of sellers and endusers wasn't becoming a reduced share of actual trade.
05-23-2012 04:51 PM - edited 05-23-2012 04:52 PM
I think that most folks who deal with the actual physical products will be big losers in this deal. This was done strictly for the paper traders.
The hours were fine the way the were....
05-23-2012 11:04 PM
The U.S. is not the only location that wants to trade commodities,so it's pretty logical that each area would like to trade when they are awake. ICE saw that and CME had to match them.
i agree with the thinking that producer hedging may lessen as growers lose faith in convergence giving any reality to futures. The problem with going the cash market route might be addressed by the people who were scared by the ethanol renege in '08. That was stopped then, but there is no guarantee that a large buyer could act just like China does and use what we may not think are valid reasons to get out of a sale.
Producer uncertainty will continue to increase.
I still recall that about 15 years ago, I sat in an office in Nevada, IA with a Cargill executive who talked about wanting to vertically integrate crop production. They would pay for all inputs adn the farmer would get a guaranteed price per acre (and never own the crop). I always thought vertical integration was behind Cargill supporting the grain bin program. There were some pretty creative marketing plans about 10 years ago that tried to lock in a lot of production.
it is entirely likely that in very volatile times, farmers might prefer to have a long term relation with a buyer. maybe we all need to look at the chicken industry or swine for a hint as to how we will deal with extreme volatitily.