01-22-2013 01:01 AM
Regarding futures being inferior to cash for mkt viewing, assessment, I would have to disagree, really completely. No invention is perfect but IMO futures lead cash as various information is digested, it gets discounted into futures prices. Physical is stocks vs needs, cash is today, a Missouri show-me mentality invites disaster. Grains generally begin Spring at higher prices with risk premium built in - i.e. the crop is un-grown, things can go wrong, as the crop grows, if there are no more than avg. problems prices falls on into harvest as potential becomes reality, and generally bottoms under the full weight of a grown crop. What could be more natural.
If problems develop, the mkt digests and attempts to price that in. End-users with worry may move to price more, extend coverage, adding to spec buying. Prices anticipate as best they can.
Wheat topped Jan 2012 coming off or some problems in various growing areas in 2011, worried about new crop prospects and in sympathy with bull-runs in other grains, oilseeds. Fall 2012 with the bulk of SRW substitution for corn behind us (a rarity in magnitude) and with a lack of fresh events news, we lost 1.90 in Chicago SRW futures not adjusted for roll.
Futures are thinking physical all the time, the market can be wrong, but usually not as wrong as prognosticators. If a producer is going to think SHOW me a good crop is grown before selling, he is going to sell at the worst time 80% of the time. A well inventoried producer who sells into worry, does well 70% of the time. H is suppl.ying worriers with what they want.
There is not a week where there are a dozen supposed bull headlines to quote, which become useless at best and mostly harmful. No one knows what all in being expressed in price. The best might know 50%.
Billions have been collected by producer hedgers and specs supplying the WANTS of Index length and perma bulls. It is likely there are billions more to go. Overtime, commodity prices approach the cost of production. A lot of capital is going into expanded production NOW, which means on average ,,, lower ranges.
Futures are now playing a weighing game, will troubled areas stay troubled and worsen, creating an actual tight WASDE vs will these grand prices ensure high seedings around the world bringing on crops greater than use, and a collapse in futures and physical.
What if someone went around weekly congering up themes of greater than trendline in the major growing areas and posted them, would that bring on record lows in prices? Reality is always just beyond the hazy horizon, that is as clear as it ever gets. I say accept that and your base of understanding and strategizing is at an honest start.
Corn, wheat and soya are consumables, they are not hard assets, soon the freshest generation to do so will find that truth.
01-23-2013 12:39 AM
You've got futures 101 down pat. You always have. In real life it just doesn't work that way.
The digital age has leveled the playing field for information. The market has no uniquely unkown info that is superior - and judging by the constant stream of floor trader's explanations for any given day or situation it appears many don't have a clue. On the other hand they don't have to. They are operating short term. As soon as the trend for the hour/day/week changes they restructure their positions.Has nothing to do with physical in a large way. What does a 50 cent drop mean? Nothing if it goes back up in the next three days. Unless you're in an exposed position as a floor trader.
And then there is the basis. A bit hard to explain at times if the market has insight.
No, the futures market is a corrolary to physical, otherwise it would have no reason to exist, but that's unreliable.
OK, so wheat drops through resistance. But, then it breaks that resistance again on the way up? I didn't even bother to think much about it as my information reference blinked - 'inconsequential'.
I understand that some economic operations need futures because of the monetary processes that can prevent a margin from becoming a disaster on deals already committed to. But as a producer I don't feel the need. I don't have any dependent economic agreements to worry about fullfilling. I have my freedom to do my research and look at the broader physical trends. I don't care what the futures thinks, because to a large degree it IS a zero sum game in terms of supply and demand. If overwhelming supply becomes the main factor then the game is played differently - sort of.
01-23-2013 02:57 PM
Basis is basis, eb and flow depending on how anxious stocks owners are to part with product vs user need to take on inventory- what is there to say.
Day to day mkt chatter is bad entertainment, I don’t know anyone who listens to it or reads it, what is “resistance”, technical globbyglook, meaningless except in some player’s mind. A short term trader gets paid if he/she can demand supply and supply demand efficiently, any grand fundamental shift is meaningless to him.
There isn’t any precise exact sum of information that says XYZ should be 650 , not 7, thus the mkt fluctuates seeking its “right” level, which is always imprecise.
Wilding spec interest adds premium to mkt prices, someone collects that, either good long term speculators or producers.
Margin disaster? A producer or spec should never over play vs their resources and hedgers should always have a bank backing them.
You chose to nit use future ,fine good, many others do. Fortunately prices do not always go up, basic economics is always at work and balanced producers hopefully scale into crazed bullishness, Egypt buying and supposed Russian crop disasters, and thereby collect excess crazed length.