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Senior Advisor

Re: From the floor April 26 - (Limit increase)

Who says the cash market is keeping up now, or should? Basis establishes thre are two seperate markets. Only a better tie in to physical through producer/hedger deliveries has a chancce of tieing the two together, and it's a fact that the CME doesn't want to see that. It might force paper to keep closer with cash. WHAT a CONCEPT????????  Reality bringing paper to heel? Say it ain't so.

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Senior Advisor

Re: From the floor April 26

The natural ally would be a producer/hedger with full contract rights to deliver.  This would require the CFTC to tell the CME to rejuvenate the inadequate delivery destination system. Which they should have required long ago anyway.

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Veteran Advisor

Re: From the floor April 26

Palouser,

 

I'm hearing both sides on this issue. Here is the response of one of my contacts that is against it. This person is at a pretty good-sized trading firm. In his own words:

 

"We do not like it for the commercial elevators. We are urging all commercial elevators and end users to contact the NGFA or their local state Feed/Grain associations to voice concerns to the CFTC and CME to not go through with this.  Increasing the daily limit to 50 cents/bu will only increase volatility which is not needed in our industry."

1.       We also think this kind of increase to the commercials will only push the commercials to use "other" tools to market the physicals.
2.       This means larger margin calls.
3.       This means deeper pockets from the banks the commercials use.
4.       This means more cash trading without hedging," he says.

 

 

Mike

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Veteran Advisor

Re: From the floor April 26

There is another side to the story.....I've seen several times when the market traded a limit move and the next day there were expanded limits, but the trade appeared somewhat more "cautionary" ...

 

now, if you think limits should not be expanded.....do you also think they should be cut in half??

 

interesting topic

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Senior Advisor

Re: From the floor April 26

Therein lies a problem. Increased volatility raises insurance costs for producer/hedgers with no way to avoid the difference between the basis spread at settlement time between paper and cash prices, and yet part of the premium cost represented by that spread for a put is included.

 

But producer/hedgers are unimportant in the scheme of the CBOT, even after we are told it's all for our benefit and allows off putting of risk. But cululatively, if one is not hanging out too far, it's just too expensive - and the point that the integrity of the market rests on the face value of a contract that includes a set number of bushels at a set price is bogus. But, that doesn't mean that pony doesn't get trotted out regularly.

 

Maybe the commercials will figure out it's time to bring in tyhe producer/hedger interest - as voters, if nothing else - because they won't win the battle agains tthe CME and CFTC otherwise. Ain't going to happen. No way, no how. It's a done deal if it promises to increase the writing of future contracts. The CFTC is fully captive of the CME and trading houses. PERIOD.

 

 

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Veteran Contributor

Re: From the floor April 26

Integrity shouldn't be mentioned with CME and CFTC.

 

Now back when they raised Cattle limits I was against it, but in the end the cattle market moved a lot higher.  As for the grain limits, the limits and expanded limits we have in place, seem to be working fine for now, unless corn really is going to some crazy high number.  $12 corn does seem a little crazy, BUT??? 

 

The Soybean market has a 50 cent limit and how many times has the market needed it over the last year? 

 

 

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Veteran Advisor

Re: From the floor April 26

Raising the limits is attracting attention.

 

http://www.zerohedge.com/article/musings-true-reason-cmes-increase-daily-corn-trading-limits

 

 

especially the ending comments.:

 

"The limits they have now seem to be working, and I think going to 50 cents would be a mistake," said Harry Bormann, grain team leader with MaxYield Cooperative in West Bend, Iowa.

"Higher limits mean we have to margin more.... It's going to be a cost to us," Bormann said.

Ah, and there you have it: by inviting not only more vol (read bottom line for the business) but more margin, the CME is exposing speculators to far greater impacts from margin hikes (and drops). Which of course means a far great capacity and ability to kill any commodity rally dead in its tracks. Because if current margin hikes are failing, a topic exposed previously on Zero Hedge, the CME has realized it will certainly need a bigger mousetrap, and far greater visions of overnight fame and fortune.

Expect to see this move followed in all other major commodities." 

end quote

 

 

My take.  We are going to see more and more changing of the rules if we don't get this crop in the ground soon.  The big money at the top dressed in their designer suits aren't too please with some farmers in coveralls showing up at the party.  Frankly, I don't want at their party either......what was it Jim Rogers said about what their new jobs would beSmiley Happy   Got to keep the humor. 

 

Forecast looking drier for next week........IA can still produce a record crop....last I knew, the cure for high prices, was high prices...

 

 

 

 

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