09-18-2012 12:01 AM
...... of why spec trading doesn't tell you much about the physical market. What was the message to producers by this act of limit down? Not much. Nothing has change in the physical market, except it's getting tighter and everything is up in the air.
Why did the market go down? No reason except trying to capitalize on market gains and scaring the bejeeezuz out of other specs - or triggering computerized trading programs.
It's simple. A producer may be long and at risk but, a market downturn will likely cost only a fraction of the calculated 'value' of the crop. There may still be a good net profit, even if it's not as good as the day before. It's entirely different for a spec. The spec only puts down a fraction of the value for a 5,000 bu contract with a face value of 'x', depending on which contract. How many he buys depends on any number of factors. Whereas a producer can still be making good money at the 'limit down' price the spec may be completely wiped out many times over before getting out. Has nothing to do with physical fundamentals and everything to do with leveraged buying and the act of taking a profit that can cascade in seconds to a jam up at the door. Fear, panic, wipeout!
So, what did the producer or owner of physical dicover? That specs can torpedo the market for any reason at all at any time. What does it tell a producer about the next 6 months. Simple. NOTHING. Except that volatility is the fluff in the market. The market 'knows'? ...... Right.
But, a producer can never defend the face value of a contract.
09-18-2012 03:04 AM
Working the graveyard shift, just checking the markets at break. Soys dropped from -5 to -29 in what seemed like 10 minutes. What went on at the other sideof the world to cause this. This is hard on the nerves for sure.
09-18-2012 04:09 AM
And the wild ride continues. About 3:45 AM EST -5, then by 4 AM EST -29, went to - 33 now it is 5:05 and it coming back at -22. Watching this trade for the last few nights it seems kind of quiet from 9pm until around 3 am and then things start happening. Does this coincide with trade opening or closing somewhere else as in the beginning of the day or end of the day?
09-18-2012 06:09 AM
I agree with everything you say but a producer still has to pull the trigger just like a trader. Very simply if they did not sell before Friday, their product is worth less on Monday. Could the product be worth more next Friday? Yes, but now the producer is playing the waiting game and a lot can happen to his product...ie, mold, storage, rodents.....etc.
A tricky game.
09-18-2012 06:23 AM
As one of the evil specs (but a very small one) I don't care which direction a market is going in, or why, I just want to be there when it happens. With a few simple technical indicators and the right mindset I usually am. But I believe the market does "know," and you had to figure that some sort of downward move was going to happen in soybeans before the month was out. Just natural for this time of year, and they tend to make a low in October. Would not be surprised to see them resume their climb up after that.
09-18-2012 09:12 AM
Yes, I agree. As the time frame for a sale gets smaller and you are reaching a milestone at which you want to sell then the volatility becomes a minefield for technical reasons. I've been ready to pull the trigger on the last half ot '11 crop for a couple of months with full confidence that I would see the price i wanted - 3 times. Each time the market has taken a 'technical' dump and I pulled back. I will not sell on what I think is a nonfundamental fall in the market. I've almost always been rewarded by that judgment with other chances. Still, it is a practical problem.
I sold Friday.
09-18-2012 09:25 AM
Several years ago after the E markets had been going for several years I asked a simular ? of a trader and his answer was that about 3am is when the news get flowing out of Europe and Asia is finishing up, and the news wires are going and that is when the big traders here in this country get up in the morning get their coffee and start going through the events or lack of them.
His story at that time is that till 3am it is just noise and chatter and does not count till after 3am. .