Why speculators are good for us

[Fransisco]

Thanks Kemosabi, it was getting a little lonely in here.

[FarmRanger]

no problem, were you feeling like Bob in the Newhart show? It was fun watching you banter with Larry, Darrel and Darrel.

[jensend]

i'm in favor of free enterprise too. just not many places to find it these days. heck, even dwayne andreas is frank enough to say it's the last thing he wants and he'll work against it. free enterprise would fix a lot of the things that are wrong but just believing it exists doesn't make it so. guys like walter williams are like ann coulter - they cater to an audience and are willing to say what the audience wants to hear. from what i understand the ultra-rightwing commentators are being discredited with time and the stupidity of the bush administration so maybe they've had their fifteen minutes of fame. the real world is real - williams is just a columnist pushing spin.

[TOM4CWB]

Fransisco,

Any user of a futures is speculating... even more so if the product has yet to be produced.

The 'Hedge' users... who physically use or produce the product... are quite happy to have the "speculator' buy the other side of the market... if it benefits their position.

In the HRS market this Feb/08... there were cash buyers who paid the high futures prices... and then in basis actually paid even more to the seller of the wheat... if they were willing to supply at the specified time.

The US growers were given the opportunity to sell every last kernel... they chose to deliver... when the consumer needed it.

I don't see how black oil is any different.

I was able to hedge my fuel... and am glad some other party now is making up the difference of the additional 30%.

I still speculated that the price of oil was going to rise... when I locked it in last fall... even if I am going to burn/consume that oil!

SO;
In the end... we are all speculators... if we use the futures!

[wilagro]

Fransisco: From your article.

"Say that today's price of corn is $6 a bushel. I have a hunch that because of future supply and demand conditions, such as drought, war and increased uses for corn, that in May 2009 corn will sell for $12 a bushel. I stand to make a lot of money if I buy corn now for $6 a bushel, hold it, and in May 2009 sell it for $12 a bushel. Sure, I've made a bundle of money for myself, but is my speculative activity deserving of condemnation? The answer is no; I've served a valuable social function."

He also HELD his corn from the market and if others did the same they "created" a shortage which caused the price to climb. This climb very likely wouldn't have occurred otherwise. So, yes, he should have been condemned.

Most speculators are leaches who create no NEW wealth but manipulate the market for their own benefit.

[charliep]

wilagro

From a CWB perspective, are speculators a good or bad thing?

I have heard suggested that the CWB needs futures market volume to trade their risk management program. Over the course of a year, the CWB has somewheres in the 18 to 20 million tonnes of wheat they sell. Through the services they offer customers (buyers of western Canadian grain) to allow them to manage price risk, methodologies to manage the risk to the pools of the various producer pricing options and finally their stated methodology of managing timing risk of sales activity (page 42 of the annual report), the CWB is a very active user of the futures markets. Most futures market exchanges have very strict rules on the percentage of open interest anyone group can hold and the CWB would likely be close to them at various times during the year. Large trading volumes/market liquidity serve the CWB well and make their risk managment activities more effective.

The issues in previous threads have not be about speculators as such but rather a new breed of them in terms of funds who approach the CWB in terms of the size of transactions and are not driven by the same fundamentals as other traders (like a 300 pound clumsy person who tries to move around in a canoe). The impact (some would say) has been higher volatility which has been a topic in other threads.

Will note these evil new breed speculators created the opportunity to sell new crop wheat for over $10/bu (even over $12/bu). But I guess you would argue this was a bad thing.

[charliep]

Should be page 43 annual report.

Will note you criticize the farmers who chose to store corn for higher prices (realizing the risk was they may actually sell for a lower price). Would you have society take on the role of telling farmers when to sell and how much to sell for?

Will note farmers in Argentina are currently striking (refusing to deliver) to maintain their right to sell when they want and at a price they want. Will note that rice farmers in Thailand and Vietnam were not able to sell into the higher priced export market as government used their power to ensure domestic supplies/manage food inflation.

[cottonpicken]

Ol willy williams is glossing the surface with typical spin.

He's shifting thinking away from what is really happening.propaganda 101.

Why are the speculators all of a sudden here in the first place?

Charlie do you remember our "smart money" debate a while back?

I didnt buy gold at 375 because i thought the supply and demand of rings was out of wack.
Or when copper was 80 cents.
Or when oil was 27 dollars.

Too much money is the reason.
Why?
I'll explain a little latter it will take some time.

[charliep]

Perhaps I do understand. The 300 pound gorilla in the canoe does want to be long. Having said that, I doubt even the gorilla has been long wheat all the way down from March.

Like wilagro, I do look at the commercial side of the commodity (managing risk) and try to sort positioning based on the realization I can't forecast the future with 100 % certainty.

One thing I find interesting is the assumption the exceptionally smart speculator will be long all the way from $6/bu to $12. My observation is that a speculator would have been in and out of the market several times based on the normal ebb and flow of prices. Maybe that is the complaint about volatility - new players that are extremely well funded and can endure financial pain for long periods. Makes it tough for everyday mortals who have low pain threstholds on margin calls.

[DogPatch]

I haven't read all this garbage, but in my opinion, speculators are the scum of the scum. They pray on other peoples misfortunes, and speculate that it will get worse. Few of them have ever seen the commodities that they deal in, and could care less that in this particular instance, its helping grain prices. If the wind ever changes, and the flavor or the month is new, then they drop corn, wheat and soy so fast it will really screw those of us that actual have the commodities in the bins or corrals and a dirty pair of jeans to show for our hard days work.