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| As I read the proposed rule change, it deals with increasing position limits. Instead of the position presented by the Farm Bureau, they should be in favor of the rule as the CBOT would not have proposed it unless they sense an increased demand for speculative positions. The more speculation in our markets, the better. Spot futures in corn do not have a price limit. The Farm Bureau stance in this matter is a bit behind the curve; you cannot have price discovery both ways. There is a huge amount of capital seeking to enter markets without limits & I can assure you, when a large trader, both the CFTC and the Exchange is monitoring your activities constantly. In terms of the basis, I see nothing new. When prices advance & producer selling expands, it is natural for the basis to widen & in view merchants are now dealing with prices considerably above the norm....it requires a giant increase in capital requirements & there is also a risk in non-performance of contracts, which merchants are now facing in spring wheat. This is price discovery....I can assure you, if we as a group, were presently in the grain business, we would not sleep many nights in view of the capital risk now involved. All of those risks are part of the cash basis. Once these markets find a level of stability & the cash selling slows, basis recovery will occur...always has and believe it will again. At this moment, we are in exceptional times and farm organizations should be anxious to get as many speculators in these markets as possible...without the speculator,,,we are at the mercy of the giant grain companies.
Fund managers sitting on a billion dollars with more money flowing in every day have some difficulty in entering markets with low position limits. REMEMBER...these guys also short the market....bull markets need shorts. Every short, speculative, has to be a buyer sooner or later. The speculative limits were significantly lower in previous bull markets & hedgers have unlimited power representing selling & buying and in order to keep some equilibrium in a market, the speculator should have the facility to offset that size of trading.
Example, our corn crop has gone from below 5 bil...and that was a landmark..now we produce 13 b....and in view we have world markets....the CBOT is a hedge facility for corn crops other than just the USA. The legitimate seller, hedgers, would be in a position to overwhelm the market if speculative limits fail to maintain and/or lead natural growth.
Please note the cash basis in spring wheat. It is a sharp premium to MGE futures & futures are trying to keep up with the demand but are limited to 30 cent moves.
Edited by SeniorCitizen 1/29/2008 06:25
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Possible Raise of Daily Corn Limits
