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Veteran Contributor

Re: futures now

"Ultimately in a market that requires physical delivery, the price is set by the producers, not the traders, The traders just catch the wave and ride it. So there will be plenty of food on America's table even if you are not the one growing it. Because if you do not adapt to use every new method and weapon in the farming arsenal, you will fold up and be replaced by someone who uses those weapons. And the supply of food will keep on rolling in."

 

If you get some of these posters to understand this Ray, I'll be impressed. They continue to do the same thing they've always done, and expecting different results. 

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Senior Contributor

Re: futures now

What amazes me is how the ones in this forum, and perhaps more pervasively in the industry, squander so much of the great work they do in the fields, not because they cannot understand the financial engineering products that really can help them, but more because they don't want to understand them.

 

 

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Senior Contributor

Re: futures now

You futures traders are really clueless ,in your knowledge of growing and marketing a crop. So tell me what are these magical financial instruments?
Hedges, options, Tbills , yeah we know all the stuff. Tell me what you gonna do when you're all hedged up and you have a crop failure. Not so easy is it.
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Senior Contributor

Re: futures now

First of all, who is the first one to know if you have an impending crop failure ? You, the farmer. Which means the market will not yet have reacted to what's going on out in the field. When you see crop failure happening, you make one phone call to your broker and buy in all your hedges. It takes less than five minutes of your time and unless you have many millions of bushels hedged, you'll buy back your hedges within half a cent of lowest price to highest price of your purchases.

 

If you were wise about selecting an adviser, you will probably have a profit on the hedges when you buy them in, meaning you'll be buying those contracts back at a lower price than what you sold them for. So you'll have made a profit on some portion of your production even if it failed. Which means you will make more money than if your unhedged crops failed. 

 

That's not clueless, that's profit. I don't know how to market a crop, but I sure do know how to make the most money from it.

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Frequent Contributor

Re: futures now

traders dont set the market price we just follow trends...

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Veteran Advisor

Re: futures now

Selecting an advisor? Interesting.
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Senior Contributor

Re: futures now

That's right. If the supply/demand equation of corn favors higher prices, even the largest of funds can move the market one way for only so long. Eventually the dynamics of the actual crop will determine the price. A really big hedge fund that has a good idea that there is a lot of buyers who have been holding back on their purchases or a lot of sellers who have held their production off market can move the market to the point of forcing the hands of the side that is not in compliance with the actual crop supply and demand, but that's only because the actual supply and demand favors the market to move in that direction. 

 

For example, say there is a drought condition that lasts for a growing season, like we saw in the summer of 1988. Prices rose because of the reduced supply as the drought hurt crops. If some big fund decided they wanted to try pushing prices back down, they might succeed for a short time, but the rest of the marketplace - especially the end users - would step up and start buying, knowing that there was not enough of a crop to support a down move in those prices. The hedge fund would fail because it was at odds with the supply and demand function of the actual market.

 

The same probably holds true now, Farmers have a huge crop in the field and they have not been very active sellers because they want the prices of last April instead of the prices of this October. But the bottom line is the actual supply and demand forces in the market right now say that this corn in the field has to be sold because there are a lot of farmers that need cash flow to run their businesses, and also because there are some really big farms who have low enough input prices that they make a decent profit at the current prices. So if a big fund wanted to come into the corn market now and sell it down, the supply and demand function favors such a move, and the hedge fund eventually will be buying from frightened farmers at lower prices than where it sold the corn to begin with. 

 

In both examples, the market could only stay in a trend that conforms with the supply and demand equilibrium of the market.  Which is why traders don't move markets, but underlying trends based on the actual supply and demand of the crop does. 

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Senior Contributor

Re: futures now

I am not an adviser, and I will not recommend any advisers for a number of different reasons. I have written about how to select a good adviser, it does not take long, and once you are satisfied with their track record, then they will give you the trade ideas that will guide your hedging program. I favor advisers that are not brokers, and instead work for a fee, because there is no reason for those advisers to be anything less than honest as they get paid whether you use their advice or not. 

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Senior Contributor

Re: futures now

You just made my point.
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Senior Contributor

Re: futures now

You didn't make a point. You asked me a question about what to do if there is a crop failure when you have a hedge in place, and I explained how you get out of the hedge and often will do so with a profit in hand,

 

What is your point ?

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