06-06-2013 09:09 AM
Used to be that the Chicago price was directly related to the local price of physical corn plus or minus a fairly consistent basis. And if the CBOT price compared to the real price got too far out of line traders could force delivery. Today the CBOT price of corn has totally disconnected from the real price of corn as witnessed by basis over plus $ 1.00 in some areas and fluctuating wildly. The CBOT seems to be trading paper that is a figment of someones imagination rather than paper tied to bushels in a bin somewhere. Are traders no longer able to force delivery or has the CBOT just become an extension of Las Vegas??? I know this disconnect between physical corn and paper corn has me very reluctant to use the CBOT to hedge my crops lately.
06-06-2013 12:18 PM
CX1, Not sure about too much, but I am sure that the basis has become even more volatile than the CBOT market. As I am writing this, I am considering a hypothesis that the root cause is that the normal delivery pathways are in various stages of empty and buyers of physical bushels are forced to utilize unfamiliar sources to find grain for their needs. Ethanol plants in Missouri or south western Illinois are likely to be unfamiliar with costs associated with purchasing corn from Minnesota or Brazil, but are forced to do so becouse there is no local corn available or at least available at these prices. Seems to me that is a situation likely to worsen before it gets better. Also seems like it may take a half to a full billion bushels of extra corn this fall to refill those pipelines so the system can get back to normal grain delivery flows. Anyone here know if paper traders in Chicago can still force delivery of grain contracts?
06-06-2013 12:23 PM
actually no, farm-n-hawk.
i agree, they probably don't have a clue as to the MAGNITUDE of matters, but if they REALLY thought everything was ok or gonna be ok supply-wise we'd be down pretty hard today on paltry exports and raining in Chi-town in June......don't ya think?
I mean Jul Corn's in an uptrend today after 1st 15 minute kneejerk selloff---into + territory.