Sorry for the length – but there’s a lot going on here.
So flax won’t make it on the new electronic board, eh? My guess is that this time next year we’ll be wondering why they didn’t go electronic sooner. Don’t listen to the floor traders when they say that without them, the exchange will die. Not only will they be replaced, but they’ll be replaced with volume. You may be right about flax dying – but going electronic won’t be what killed the flax contract.
Futures contracts die from lack of use – basically, like a muscle that hasn’t been used, they atrophy. If you’re going to say that “they” killed it, toss your net a little wider. Those with an interest in flax – including producers – that didn’t use the contract, are the ones who may have killed it. Assuming the commercials are the “they” you refer to, “they” didn’t kill the contract from not trading it – “they” are virtually the only ones trading it in the last decade or more. The fact that others didn’t trade it, simply allowed “them” to abuse the contract. And they didn’t abuse the market because they wanted it to die – they did it because they could and they could make money doing it.
The abuse of the flax futures market occurred at a time when the compliance dept of the exchange was lax. You say the MSC is a puppet – look a little closer. The WCE itself was known as the “toothless tiger” not that long ago. Today, traders complain bitterly about the WCE compliance dept; a decade or more ago, they’d go for beers with each other. In another thread, the new board was featured. Heavily skewed toward FCM’s and outside interests (only 4 commercials on the board), the current WCE is set to act in the interests of ALL participants, particularly the non-shareholders. The commercials no longer rule the roost. These are all good changes – electronic trading, new players, committed compliance, a “public” board – but for some reason, I don’t see anyone getting excited about them. Instead, all I see here is ranting about how bad things are and it’s all “their” fault.
Interesting comment on canola basis: “we are seeing canola basis fluctuate to attract seed as if the futures were not/will not work/working”. First off, basis is supposed to fluctuate to attract seed – I’d worry if it didn’t. But, assuming you’re saying the futures are not working, are you saying this is because “they” don’t want it to work? Or is it not working because “they” aren’t using it? If so, you’d need something like larger trading margins to support the logic (like what I think you are suggesting in flax). Are they?
Your synopsis of the flax market is interesting. I am so far away from it I really can’t comment. But before I go slit my wrists over it, I would certainly want the answers to some fairly simple questions:
Is the EU price you quoted, a bid, an offer, a trade, or an indication? Flax and linseed oil are two small and often very thin markets. Often nothing is going on – no buying, no selling – in that situation, when a trader is pushed for an offer for publication, you can be sure it’ll be a high one.
If it’s a bid, is it from a processor (end user) or from a reseller (trader)? It can make a huge difference. A reseller will take the market to the moon to cover a commitment, whereas a processor can simply shut the doors before taking on too much pain. Is there a structural reason why a resller would bid for flax in EU much higher than in Cda?
If flax is worth $500 a tonne to someone in the EU, but the best bid in the country is $8.50 a bu, or about $335 per tonne, that leaves about $165 to move it. This means there’s about $120 for ocean freight and let'S call it, bonus margins. I don’t know what current ocean rates are but I’m sure they aren’t over $100 a tonne. If all this is true, there’s a lot of bonus margin in there. Know a good broker? For that kind of money, you could easily go around the “they” and spread some Christmas cheer to a few flax farmers out there, while keeping a little for your time. I must be missing something – someone should be picking up that ball and running with it. If not, heads should roll. Unless of course this is simply the basis for a conspiracy theory.
Now mustard. 72 cent yellow mustard in 2002 wouldn’t impact French’s retail prices because (I’m gonna go out on a limb here) they never paid 72 cents for it. If things haven’t changed, the vast majority of mustard is forward contracted by processors. The price risk is worn by the commercials. What they don’t cover with producers, they buy-in after the fact, in the cash market. And if there’s a crop problem, they pay dearly, because Mr. French wants his mustard and he doesn’t care what it costs the reseller. So the reseller or commercial may pay farmers 2 or 3x the actual selling price to French’s. I doubt French’s or any other major user has ever paid 72 cents. But maybe things have changed….
Seems to me you got a mad-on for something, Incognito. I like Boone’s idea. Sleep on it. I find a couple of rusty nails go a long way to soothe my ruffled feathers.
So flax won’t make it on the new electronic board, eh? My guess is that this time next year we’ll be wondering why they didn’t go electronic sooner. Don’t listen to the floor traders when they say that without them, the exchange will die. Not only will they be replaced, but they’ll be replaced with volume. You may be right about flax dying – but going electronic won’t be what killed the flax contract.
Futures contracts die from lack of use – basically, like a muscle that hasn’t been used, they atrophy. If you’re going to say that “they” killed it, toss your net a little wider. Those with an interest in flax – including producers – that didn’t use the contract, are the ones who may have killed it. Assuming the commercials are the “they” you refer to, “they” didn’t kill the contract from not trading it – “they” are virtually the only ones trading it in the last decade or more. The fact that others didn’t trade it, simply allowed “them” to abuse the contract. And they didn’t abuse the market because they wanted it to die – they did it because they could and they could make money doing it.
The abuse of the flax futures market occurred at a time when the compliance dept of the exchange was lax. You say the MSC is a puppet – look a little closer. The WCE itself was known as the “toothless tiger” not that long ago. Today, traders complain bitterly about the WCE compliance dept; a decade or more ago, they’d go for beers with each other. In another thread, the new board was featured. Heavily skewed toward FCM’s and outside interests (only 4 commercials on the board), the current WCE is set to act in the interests of ALL participants, particularly the non-shareholders. The commercials no longer rule the roost. These are all good changes – electronic trading, new players, committed compliance, a “public” board – but for some reason, I don’t see anyone getting excited about them. Instead, all I see here is ranting about how bad things are and it’s all “their” fault.
Interesting comment on canola basis: “we are seeing canola basis fluctuate to attract seed as if the futures were not/will not work/working”. First off, basis is supposed to fluctuate to attract seed – I’d worry if it didn’t. But, assuming you’re saying the futures are not working, are you saying this is because “they” don’t want it to work? Or is it not working because “they” aren’t using it? If so, you’d need something like larger trading margins to support the logic (like what I think you are suggesting in flax). Are they?
Your synopsis of the flax market is interesting. I am so far away from it I really can’t comment. But before I go slit my wrists over it, I would certainly want the answers to some fairly simple questions:
Is the EU price you quoted, a bid, an offer, a trade, or an indication? Flax and linseed oil are two small and often very thin markets. Often nothing is going on – no buying, no selling – in that situation, when a trader is pushed for an offer for publication, you can be sure it’ll be a high one.
If it’s a bid, is it from a processor (end user) or from a reseller (trader)? It can make a huge difference. A reseller will take the market to the moon to cover a commitment, whereas a processor can simply shut the doors before taking on too much pain. Is there a structural reason why a resller would bid for flax in EU much higher than in Cda?
If flax is worth $500 a tonne to someone in the EU, but the best bid in the country is $8.50 a bu, or about $335 per tonne, that leaves about $165 to move it. This means there’s about $120 for ocean freight and let'S call it, bonus margins. I don’t know what current ocean rates are but I’m sure they aren’t over $100 a tonne. If all this is true, there’s a lot of bonus margin in there. Know a good broker? For that kind of money, you could easily go around the “they” and spread some Christmas cheer to a few flax farmers out there, while keeping a little for your time. I must be missing something – someone should be picking up that ball and running with it. If not, heads should roll. Unless of course this is simply the basis for a conspiracy theory.
Now mustard. 72 cent yellow mustard in 2002 wouldn’t impact French’s retail prices because (I’m gonna go out on a limb here) they never paid 72 cents for it. If things haven’t changed, the vast majority of mustard is forward contracted by processors. The price risk is worn by the commercials. What they don’t cover with producers, they buy-in after the fact, in the cash market. And if there’s a crop problem, they pay dearly, because Mr. French wants his mustard and he doesn’t care what it costs the reseller. So the reseller or commercial may pay farmers 2 or 3x the actual selling price to French’s. I doubt French’s or any other major user has ever paid 72 cents. But maybe things have changed….
Seems to me you got a mad-on for something, Incognito. I like Boone’s idea. Sleep on it. I find a couple of rusty nails go a long way to soothe my ruffled feathers.
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