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Veteran Advisor

The Rats Are Deserting The Ship

Bumper crops, smarter farmers with grain bins and more public access to data has grain traders at the big firms (ADM, Bunge, Cargill, Dreyful) on the hot seat.  There is a fair amount of shuffling going on, according to Bloomberg.  

 

In a word, the grain traders are less profitable.  I guess that's two words.

 

http://www.agupdate.com/news/world/there-s-so-much-pain-in-agriculture-that-traders-are/article_3002...

 

1.  Bumper harvests reduce volatility, and traders need volatility.

2.  Contango was working so traders could foresee a profit.

3.  More people see more data so arbitrage is more difficult.

 

How does this affect producers?  Here is my unsophisticated take - you tell me if I'm wrong.

 

1.  Reduced volatility means watch input costs and lock in a floor price in a somewhat conservative way.

2.  Sell the carry when there is one and sell the cash when there isn't - pay down debt.

3.  Make data work for you because everyone else is using it.  Don't bet against a world of information unless your contrary information is on a big enough scale that the market will react.  (Don't expect prices to rise just because your corn field is yielding poorly.)

 

 

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6 Replies
Veteran Advisor

Re: The Rats Are Deserting The Ship

I like reduced volatility. I make a buy or sell based on the fundamentals at certain levels and wait patiently for the opportunity to profit.
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Honored Advisor

Re: The Rats Are Deserting The Ship

Many of these companies just need an old fashioned rat stomping session.

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Honored Advisor

Re: The Rats Are Deserting The Ship

me too  Smiley Happy

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Veteran Contributor

Re: The Rats Are Deserting The Ship

less profit aww welcome to my world

Senior Contributor

Re: The Rats Are Deserting The Ship

Don’t think it matters a whole lot on our end we take what we can get as we always have. Sure if you get caught up on rent, production costs, and of course cost of living,; some will have an option to try one of those options. However most will never get out of the red to contemplate those decisions. Like when you say one personal field doesn’t matter on the market, of course it doesn’t like when it rains 5” in the middle of harvest over 6 states.? Doesn’t matter either apparently. Between traders and the USDA never stood a chance to much illegal activity still. Always talked about Chicago being founded on the markets, how does one business get so twisted: answer Money. If you buy a contract it should be delivered to your door and then distributed when sold if this were the case you wouldn’t be allowed(at least not realistically) to go 1.5 million long or you need a bigger door step. Problem is the product doesn’t exist for the most part just says it does on paper or in the system. A system that is clearly broken and irreparable.
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Senior Contributor

Re: The Rats Are Deserting The Ship

P.S. my conservative locked in prices were set 20 years ago, caught them 3 Times. 3/20 .... same grain price as 30 years ago played a little into that while everything and I mean everything has increased200%
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