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John_Walter
Advisor

Poll: Are CBOT prices realistic?

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10 Replies
Palouser
Senior Contributor

Poking at snakes with a stick are we?

Smiley Happy

 

There is really only one standard to apply. How well do the futures prices reflect cash prices, future delivery contracts, and do the contracts converge with cash at the elevators designated as settlement points?

 

 

 

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jec22
Veteran Contributor

Re: Poll: Are CBOT prices realistic?

Well, cash bean basis improved around central IA today, so endusers must not think so.

 

When are you going to have a poll, "ARE NEW EQUIPMENT PRICES TOO HIGH?"  or "ARE SEED COSTS TOO HIGH?''.

 

Given the weather events around the world, I don't think prices are that high.  So far in 2010 cash high in beans locally has been 10.50 current month.  In 09 nine the high was 12, and 08 $14.  So this year beans have been on 'sale'.  Corn prices also have been in the 2.80-3.40 cash range most of the time since harvest on 09, just breaking out in the last few weeks.  So I would say, we have to over correct to the upside on grains because we did nothing to slow demand in the last twelve months.  The sale is over, we are now at 'normal prices' and the upside hasn't kicked in yet.  SA's, Australia's and China's weather problems could rocket these prices much higher.

The problem with these markets, they can cause alot of pain for the guy preselling and coming in with a short crop.  My new marketing plan may be to market every other year.  Since I think every crop has a three year marketing window (the year before, the year of and the year after), it might just work.

I am wondering if the funds will move some money back in the stock market...third times a charm.  But grain buyers will be lifting their hedges in the coming weeks, and that should take up the slack.  In our area, basis will improve greatly in the next month or so.

 

 

 

 

 

 

ag678
Veteran Contributor

Re: Poking at snakes with a stick are we?

I second Palouser's answer. 

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jrsiajdranch
Veteran Advisor

Re: Poking at snakes with a stick are we?

Well John,  I come down on the side of prices are realistic cause that is what they are trading at.

Now do I like them?  Hell NO!!  Do I think they will stay here?  NO again.  Do I think there will be alot of whinning like school girls when this goes lower?  OH YEA!  JR

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NDf
Senior Contributor

Re: Poking at snakes with a stick are we?

Jr. I'm sure there will be whinning by producers who miss a good selling opp, but no more so than end users that complain about ethanol driving up grain prices. In both cases there are risk management tools that each the producer and user could use, but fail to do so.

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hardnox604008
Veteran Advisor

Re: Poking at snakes with a stick are we?

Can't recall ever feeling so bloodied in what looks to be a very profitable year.

 

Nevertheless, I'm not a believer- just haven't ever bought the notion that the commodity bubble can be fully rekindled and this time around it has taken $billions more of fund money to get wheat to $8, corn to $5.

 

I don't think we crash but I do think it likley that the funds who threw the last few $billion in over the last week probably bought the top.

 

fwiw,h

 

New crop discounts are problematic but I'm going to get something started, not sure of the strategy. 

 

Once again, farmers are at risk of multi-hundred dollar/acre losses if something tightens liquidity sharply. I'd rather forego $200/acre profit than lose $200/acre.

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jrsiajdranch
Veteran Advisor

Re: Poking at snakes with a stick are we?

NDf I am a world class whiner and like to perfect my ablility at every turn! Thanks for noticing!  Smiley Very Happy JR

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Jim Meade / Iowa City
Senior Contributor

Re: Poking at snakes with a stick are we?

"here are risk management tools that each the producer and user could use, but fail to do so."

 

This statement looks good on the surface but does it contain some Monday morning quarterbacking?  If a person believes that selling some periodically is a good risk management too, that can mean one averages up or down and if the move is precipitous, one can be glad or sad that most of the sales were in one region of the price chart or another.  If a person sells on seasonal signals, another standard risk management tactic, one is sad today because the price move is counterseasonal.  If one like options over futures, then they made a decision that the volatility in the market was greater than the option seller assessed it at and had the cash to pay for the options, but it is certainly arguable that in a predictable year futures are a cheaper risk management tool than options.

 

All in all, one wonders if part of the risk management strategy isn't the choice of risk management strategies, and saying that there are good ones out there for our use is a little bit like looking in the rear view mirror.  Sure there are - but in todays grain market, the producer would have been better off with no risk management policy than the wrong one.

Jim Meade / Iowa City
Senior Contributor

Over the logn haul

Palouser gives an answer with an out.  What he is saying is that today's conditions don't meet his criteria (we don't have real convergence), so he really didn't answer the question as it's posted today.

 

It would seem to me that any speculative presence in the market distorts it because the speculator is not willing to accept and not forced to take physical settlement.  The speculator may grease the price discovery rails but doesn't do anything to take the cash arbitrage to zero.   If the cash arbitrage isn't close to zero, then the basis can never be what the professors say it is.

 

So, does cash really drive the cart or does the board?  Cash should, and over time will, like an earthquake releasing pressure.  But at any one time, it is my subjective impression that the CBOT prices can drive the cash at least to a certain point.  I say that because I think that the knowledge of the CBOT price weighs in the discussion of what cash prices should be.  The funds are not looking at cash prices when they make their moves (or at least I don't see that they are).

 

So long as there is no real convergence and there are speculators, CBOT prices are "right" only occasionally.  It's like a ripple in a pond.  Over time it flattens out, but in the meantime the boat goes above and below the resting water level and while it is above or below the price is not "right".