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04-10-2015 11:39 AM - edited 04-10-2015 01:12 PM
The day and need for producers to be in the paper markets is basically over. It's been a long time since the paper market needed the fig leaf of producer participation to justify the NEED for the paper trade.
You distinguish between the 'Market' and the physical 'market' and it's important to understand the difference between the two. They aren't the same game, and in fact are kept very separate. The CME is very careful to keep the realities of the physical market and associated logistics from affecting increased 'paper' trade as it makes its money on the volume of contracts and and the fees for administering them. The timelines for paper vs physical are completely different and the daily action of the paper market and the attempt to explain those actions give rise to the fallacy the paper market 'knows' the physical market, for which it provides the place for side bets.
The producer's timeline horizon is much longer and strategic than paper. The producer that doesn't know the local, regional and global fundamental trends and which way they are heading and for what reasons might be frustrated by the daily and seasonal arbitrariness of the paper markets. They could be easily frustrated if they think that a day's, week's or even month's paper activity is the determination of the eventual outcome of the physical market. The physical trends change from day to day to some degree but, the movements are usually more subtle than the paper market, and usually have longer effects. The physical trends in production are usually irreversable. That certainly can't be said for paper.
Should the farmer always be involved directly in the paper trade ??? IMO, absolutely NOT !!! There is less reason for the producer to be involved in the 'Market' than any time in history. The first reason to hedge is as an insurance policy - and it should be regarded as an expense - just like any underwriten policy, except riskier because it is in fact NOT underwritten for all the risks (as they are in a life insurance policy) including due to the paper market itself. For instance people don't suddenly decline and die and then ressurect on mass scales. The only time I seriously take the "market' into acoount is when I've already decided I'll pull the trigger and will watch on a day to day basis for an 'up day' to come out of the background noise.
In addition, the subsidized crop insurance takes the place of hedging with many types of policies that insure the level and type of risks that individual farmers might have with much greater flexibility and efficiency than hedges.
04-11-2015 02:25 PM
Over time the basis tends closer to the true 'flat price' in any location. On any given day the basis might not change in relation to the reaction to futures. Over time it does. Under 'demand' situations, even if very local in nature, home stored often gets a significant premium over any 'reader board' price.
But a daily price - up or down - shouldn't dictate a more strategic marketing POV based on physical trends that are often slower to affect prices.
04-11-2015 06:38 PM
paper trade is what it is............
Basis is a tool of the end user to prompt grain flow when little is available in a location........
Producer has little control over either. And very little participation in setting either segment of the price.......
Marketing programs are primarily aimed at moving the commodity out of the producers hands.....
Palouser's comments about "knowing your area and its opportunities" is an esential to a marketing plan. You can make a plan that fits you but you can't buy one that fits you.
04-12-2015 02:27 AM
BUT, keeping tabs on all the physical information one can stand tips the playing field by understanding the physical trends and the time frames they represent, so one can weight sales by knowing when to wait and see vs sell using a more basic strategy.
Information does give a producer more control over sale price by suggesting the time when trends converge and determine the crop. I keep a chart on a month scale of each region's planting and harvesting windows all over the globe. I have a pretty good idea when dry/wet/development periods are critically affecting the crops. A Chicago trader that didn't grow up on a farm is never sure.
04-12-2015 09:42 AM
No they don't. And that's the point. They are clueless to anything about the commodity they are trading. And it's fine because CME a is nothing more than a gambling parlor. So ethics and knowledge don't matter.
And to make it worse. The only "perceived" connection they have are USDA reports. Which are made up of inaccurate and outdated data.
So i again ask since you really never responded. How would you like to run your business if you had to buy inputs retail, sell your goods wholesale, and have your market price set by a bunch of people that have no idea how to run your business or what it is and are not customers.
04-12-2015 11:40 AM
Farmers are not market makers. They are market choosers. To be successful you need to seek opportunities when they exist be it cash prices or forward contracting. Hoping is not a good strategy and trying to wish the market higher is risky business. The volume traded is far in excess of production. Cash grain is always in the favor of commercials that don't need the product TODAY. They can always wait you out unless the volume is limited. Most cash grain sellers cannot wait for opportunities. The bins are full and you need cash to produce the next crop.
The market has to find willing buyers and willing sellers. The spec market is little more than casino action. What service it does provide is mostly an insurance market to lay off risk.
Betting against USDA data is a longshot bet and as certain we are that their data is wrong, their guestimates are respected by most and the futures trade reflects that. Most of us cannot make a close prediction on our own crop prospects, Yet we seem to think our predictions are superior to the USDA.