Futures Lessons i n Progress

[charliep]

Just a note to highlight the action in futures markets today and the lessons being taught in terms of never carrying a futures position close to a delivery month. It also highlights the risks of futures trading.

A reason for the collapse of the futures months is long speculators who have hung on too long and are being forced out. Anyone who stays in the market into a delivery month from the long side (bought product) risks having the futures contract acted on in which case they have to come up with all the money committed in the contract. (Before it has just been margin money).

As a disciplined cash trader, you can wait this market out. A futures trader has to make difficult decisions. As an options trader, you also can be more relaxed.

Comments.

[melvill]

Just to add to what Charlie pointed out, ALMOST EVERY CROP COMMODITY futures traded in Canada or the US, except rice, was down HARD today. After the fact, several market commentators were able to give reasonably rational reasons why it happened but as one put it "futures falling as hard as they did today was not on anyone's radar screen ahead of the session open."

It just goes to show that the market can humble all of us in the blink of an eye and market or, more particularly, price risk management needs to be forefront in an astute farm marketer's mind. Of course, as tom4cwb said in another thread, a lot of farmers have gotten used to the idea of specing with their products.

[Steve]

Charlie p; Very good advice about playing the futures market, but it is pretty hard to relax when your bread and butter money is on the trading block, may it be Future, Cash or Option. I also know you said at one time or another just do it with part of your production.

Melvill; I think you are wrong assuming that a lot of farmers got use to speculating with their products. I think debt free and some desperate farmers speculate part of their products. One group can afford to lose some money and the other group trying to pay overdue bills.

The reason I am so pessimistic about playing the commodity or stock markets because I had a stockbroker that didn’t have that radar screen working very good. He made money on commissions buy or sell and gave me a reasonably rational reason why my money went down the drain.

My experience and rule was don’t have unpriced grain on the auction block also sell it in lots throughout the season may it be on a future months or a rally in the market. Number one rule is don’t let greed override commonsense. I was very successful in my farming operation by following these simple guidelines.