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Honored Advisor

Jamie Kohake sez `end of open cry a disaster`

Jamie was on WHO Big Show telling how the electronic trade has taken away liquidity and increased volitility in especially the cattle market.  These limit moves in cattle are caused by alogorithms taking the human factor out. One of the Big Show hosts wondered what would happen in these trades without limits in place.

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Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

There were plenty of opportunities for open comment on shutting the pits. Not that I'd guarantee it would have mattered but at least you could have been justified in saying I told you so.

 

At the time, folks were mostly just trying to decide if they could get away with another 0 on their net worth statement, so they were busy with other stuff.

 

BTW, the action in cattle has been beyond brutal. It's been a great trading market but certainly can't forget about the producers who are behind the curve and getting whipped deeper into the doodoo on a daily basis.

 

It was almost a bit of legend that back in '74 folks lost $200 per head on fats. At the recent lows there were closeouts in the -$600 range and that's before anybody got cute and tried to trade their way out of it.

 

 

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Veteran Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

I've been saying this for quite some time...glad
People are starting to wake up, and try to change
Thing......after all...its our market TOO !
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Senior Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

I got in on the end of the program and found it intersting, as you did.

 

No doubt, it's nicer when trades go at a pace that let's a normal human being take a breath, kind of think about it and make a decision and act on it.  Computers don't have to take a breath and the decision becomes the action.  WE can't keep up.

 

But we get wrapped around the axle on one thing.  A lot of what these guys are talking about is trading.  Most of us farmers are  NOT traders.  We're hedgers.  If the trade is too volatile, all we need to do is place an order and let the market come to us. 

 

Once we have a position on, we dont' sit by the ticker all day long, we keep an eye on it but we only get to watching closely when we are getting ready to lift the position.

 

I don't worry all tyhat much about the volatility because when I get ready to put on a hedge I am willing to set it within a range.  I don't have try to be Annie Oakley and shoot the clay pigeon at a certain spot.  I just set my sights and when the pigeon crosses them the gun goes off.

 

Every time I start chasing pennies I lose money.

 

I agree the volatitliy is a nuisance, but I honestly don't feel it interferes with how I put on and lift hedges.

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Veteran Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

It is not a disaster and I think it has leveled the playing field.  You can trade now like the pros.   Before the pit traders had the advantage.  

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Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

A parallel issue is that under the old member owned system we never would have seen two major failures of clearing firms. Because the owners had skin in the game, rather than corporate officers who merely get wealthy if the stock goes up.

 

Also how soon we forget the summer of 2008 when we were effectively locked out of the system due to excessive volatility.

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Honored Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

Wasn`t it a good thing to have some gray-haired fellows in funny jackets trading to add the human factor?  They would know in their gut if something wasn`t quite right and take that opposite side of the trade, knowing that they`d make some money and adding stability to the price in the process.

 

The open cry was getting to be less of a percentage of the total trade, so I suppose what happened was inevitable.  But now with electronic trade, whoever has the fastest computer has the edge.  The market isn`t traded on fundamentals as much as `if it goes up a tick and my computer gets me out in a split second, I make money` instead of getting weather models and so forth the build a case of market direction in the months ahead.

 

The cattle (fat and feeder) has been all but impossible to use as a hedging tool, as the sale barn prices and the futures have been at such a disconnect. Which forced cattle feeders to go unprotected.  We haven`t seen such a disconnect in the grains, but ultimately some cattlemen will go broke over this.  The extreme over weight carcasses were a last ditch effort for some to limit their losses, which only compounded the overall problem.

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Veteran Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

Brokers only trading with their friends and family, making trades after the market has closed, getting in front of big orders (already known by the broker and friends),  .....etc. was not a perfect environment for the public either.

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Senior Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

If the cattle cash and futures don't converge that is indeed a broken system.  But just fast trading does not prevent a hedger from using the market.

 

It's easy for a hedger to get caught up in the traders patter and forget that actually, trading has nothing to do with us.  Let them make their pennies off trades.  Just as long as prices actually converge.  If they don't converge, you're right, we can't hedge.

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Honored Advisor

Re: Jamie Kohake sez `end of open cry a disaster`

You could stop the USDA prediction reports.  That would put an end to some of the volatility.  Smiley Wink

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