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Honored Advisor

Futures markets

Can we reestablish grain futures markets back in North America?  

Do futures markets function if no measurable amount of grain is delivered to delivery point?  

if buyers make delivery points unuseable?

at present Cbot grains are 95+% spec trade (grain not intended to be delivered or received). As a betting parlor they need market movers more often than once a year. So cbot uses usda’s reports to provide a “season” of events worth betting on.   So the futures seem to become as disconnected from commodity as usda is .  Viewing usda budgets over the last several years, it is probably desperate to look “agricultural”and loves the attention.

when we have extreme years like 2011, 2012, or 2019 the disconnect gets obvious  — not wanting to move to the Midwest is starting to ring in my ears like political mistakes do... 

What % of your crop would you hedge on the board if a break even or better price were offered?

or do you hedge so you don’t get the bottom price?

 

8 Replies
griz2572704
Senior Reader

Re: Futures markets

Good point about the delivery disconnect.  Take a look at the cattle futures now at $1.05.  The local sale barn market had fat prices at $1.13.  Futures in cattle cannot be used as any kind of tool for producers.  Back in college  in the 80's we learned that the basis was the difference between the delivery points and the cost of transportation to those points.  I still have my futures handbook to read about it.   Basis would not fluctuate very often based on trans. costs.  Now, the corn basis changes almost every day and almost always on a large price move up. 

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Honored Advisor

Re: Futures markets

Spoiler
Basis fluctuation — should -in theory- be relatively “freight” steady, assuming supply is available in all locations.  
Now that we are living with a 35-40 day surplus (corn as the example) and so many end users have moved to the destination— now we transport byproducts.  The basis on byproducts is probably steady.   
Basis charts drive me nuts. They look old school but they re not.  Ex., Dakota basis is theft or reflects the distance to feedlots at Amarillo.  But their destinations are as close as Iowa or nw pacific cheaper freight than New Orleans. 
Ethanol markets has some splainin to doooo.  IMO  
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Honored Advisor

Re: Futures markets

Whatever spoiler means I appoligize for whatever I did.  Between musical ads and poor WiFi it’s what you get 

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Veteran Advisor

Re: Futures markets

Dec.  Wheat  off    .10.2    -,   hearing   the   saying  the  world  is  awash  in  wheat  -  ?  ? 

Crude  Oil     off   $1.61    on  the  Oct.  contract  -  of  which  a  couple  days  ago  inventory  was  10 million  barrels  lower  - ?  ? 

When  will  bamboo  cellulose   commodity  start  trading,  due  to  the  use  in  be-yond  burger  products  as  stated  on  the  package  - ?  ? 

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Veteran Advisor

Re: Futures markets

Not  wanting  to  move to Midwest  -  ear  ringing -   I'm  thinking   is  a  mood  liken  to  dust  bowl  lyrics  of  Mumford  &  Son   ''  Dust  Bowl  Dance  ''   -  maybe   - ?

Not  having  enough  wet  sheets  to  keep  the  windows  covered  -   -   -      

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Honored Advisor

Re: Futures markets

I hedge so "I don`t get bottom price" unfortunately when I do hedge, that puts the bottom up the market in  Smiley Happy

Too many are pajama boys that study charts and algorithms, who if had to take physical delivery wouldn`t know the difference if they received oats instead of soybeans...but the games they play does add liquidity to the great casino.  I just wish I could take some of the "mark`s money" instead of winding up getting scalped by the "mark"   Smiley Happy

I guess if you play the board game, use your gambling entertainment money and keep your "grow it, bin it, sell it" side of the ledger separate.  If you mentally disconnect the two, perhaps your gambling will balance the money lost on growing Smiley Happy

One Night in Bangkok.  I like Robey`s version better than Murray Head`s

https://www.youtube.com/watch?v=aIoSlM1np1M

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Veteran Advisor

Re: Futures markets

Sw, 

You are very experienced. Traders look for opportunities.  there is no need to take delivery, no need. Farmers look to market the best price to unload their crop to make money to offset their expenses.    Two different mind sets. 

Honored Advisor

total disconnect

BA you hit it on the head....  I think most of what is called marketing is disconnected from production or product sales.

I have continued to buy and sell on futures ---- a little bit------ I have gon strictly to a Value based method with an eye on the traditionally high months and low months.  Now I have a little corn bought and a little beans.  and a few feeder cattle.

The feeder cattle are my most risky in my mind .... beans and corn are pretty safe I think   I bought them just a couple of weeks ago.  At these prices supply will be down next year no matter what happens this fall, unless usda can plant more of their cheap production.

But I feel futures are a waste of time as a hedge to protect a price, it is just too seldom that we see fundamentals change market movement.  It is an opinion and assumption market that has been pushed away from regulation and toward international investment.  It generates as much uncertainty as it protects.  I have seen a couple of solid farms pushed out of production by having most of their production contracted early and loosing their production to weather while prices rose with a government promotion of ethanol which drove the market while supplies were not in shortage.  Ethanol never has increased demand more than the 25-30% used in the ethanol process before it is shipped on to feeders, yet the rumor mills never bothered to learn about the process and took years include the byproducts that replaced feeder demand.  

Crop insurance does help maybe 50-60% of loss at best.  If your looking at a loss that will take 10-15 years to recoup it takes the desire out of guys in their 50's.  Point is they were doing at least 3 things that were ideas to protect their profitability.

Calls and puts are basically insurance against one minor part of a fairly large equation of risks that need to be navigated.

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