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.

[Fransisco]

Charlie is right, we are all speculators. Anyone with grain in the bin or a crop in the ground is speculating.

Any farmer who thinks speculators are scum should look in the mirror. Imagine, trying to make a profit from other peoples hunger. What nerve, you should be giving all that food away.

[Fransisco]

jen you don't think freedom exists?

You think its just wishful thinking?

Take a look at Hong Kong its economy is 90.3 percent free.

http://www.heritage.org/Index/country.cfm?id=HongKong

Take a look at Singapore, 87.4 percent free.

http://www.heritage.org/Index/country.cfm?id=Singapore

Take a look in your own back yard we are 80.2 percent free. And that's up 2 percentage points from last year!

http://www.heritage.org/Index/country.cfm?id=Canada

The world is not the socialist 'workers' paradise that you have convinced yourself that it is. There is freedom all around you, I'll agree that we need more of it, but to deny the freedoms we have is to bury ones head in the snow.

[Hopperbin]

I did read all this garbage but it was interesting. Just one thing about Wilagro's statement that a person that takes a long speculative position is holding say corn from the market place.
I was thinking about that and in a sense if a speculator was long that would increase the price and ration demand. But also his position must be liquidated on a specific date. So in that sense he has never had physical product, and any product say corn produced will go to market eventually. If his long position results in more corn produced because of better price then he will be adding to supply at a later date. If his long position results in less end users then he will be adding to supply and likely taking a shit kicking when he sells his position. So to that speculator I will offer a bottle of whisky because I as a farmer have had a chance to sell at a higher price.

[Fransisco]

Pickens Says CFTC Probe of Oil a `Waste of Time'

June 3 (Bloomberg) -- A U.S. probe into whether speculators manipulated oil prices up to more than $135 a barrel is a ``waste of time,'' billionaire hedge-fund manager Boone Pickens said yesterday.

The Commodity Futures Trading Commission, the watchdog for U.S. commodity transactions, said May 29 that it was investigating how much of the gain in oil prices was caused by manipulation, as opposed to consumer demand. The investigation has been under way since December.

``There's nothing to it to start with,'' Pickens said in interviews at an American Wind Energy Association conference in Houston. ``That's not what's happened. <b>You have 85 million barrels a day of oil available in the global energy market and 86.4 million barrels a day of demand.</b> So the price of oil is going to go up until you can kill demand.''

Crude oil for July delivery fell 18 cents to $127.58 a barrel in after-hours electronic trading on the New York Mercantile Exchange as of 7:32 a.m. in London. Oil has risen 93 percent in a year. It reached a record $135.09 a barrel on May 22. Some market analysts and members of the Organization of Petroleum Exporting Countries blamed speculators for the price.

``You've got to have a commodity market, because a producer has to have an opportunity to hedge when they feel like the risk is becoming too great for them,'' Pickens said. ``For every hedger, you have to have a speculator.''

Pickens, the founder and chairman of Dallas-based BP Capital LLC, manages funds linked to both energy commodities and equities. Yesterday, he reiterated a forecast, first made in April, that oil will reach $150 a barrel this year.

The CFTC said it's looking into the transportation and storage of crude oil as well as the trading of futures contracts.

The regulator will require more information on index funds and clients involved in swaps deals that are hedged on exchanges, the New York Times reported, citing draft proposals scheduled to be announced today. The CFTC will also issue expanded monthly trading reports from July and reduce the number of waivers on speculative limits given to index funds, the newspaper said.

There will also be confirmation of an investigation into a jump in cotton prices in February and a review of a program to cut costs for farmers hedging crop prices, the New York Times said. The CFTC will also start talks with the banking industry to ensure the farm industry can get credit, the newspaper said.

[Fransisco]

From this mornings market news...


It seems increasingly likely that we will soon see the heavy hand of the government "participating" in correcting the distortions in that sector. Yes, the U.S. regulators want to pass legislation which would be designed to chase the speculative dollar out of the "pits", leaving
commodity futures to the farmer and consumers for the originally purpose
of hedging exposures. Now this is a mighty fine plan I suppose, as long as
the market takes it to heart and behaves in an orderly, market friendly
fashion (as they are so well known to do!) .

My concern is that the "Law of unintended consequences" gets passed in that market too! <b>Let's say they
do pass some sort of regulation banning spec trading or limiting access to the commodities futures markets. What do you think might happen going into that? My guess is they will certainly get lower prices because every speculative dollar will sprint for the exists and every hedger will be pounding any bid before the bids disappear. Commodity prices will
implode</b>(now farmers who can't afford to hedge will have no income to hedge anyway).

The EM countries will grind to a halt as revenues disappear. <b>Then there is the question of where the billions currently in that market might
go.</b> If the commodity market is off limits, my guess is that the first
move will be into Treasuries for liquidity. Stock markets will get distorted as companies currently doing well get dumped and those who require
commodity inputs soar.

Will the rules only apply to "soft" commodities or will energy get covered as well? If so, look for the Loonie to get smoked in a hurry. This is all pure speculation but I hope that the market meddlers consider the full extent of their moves before implementation.