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| Okay. Let’s look at speculation and convergence.
If we were one of the traders coordinating domestic hedge program, and bought grain today, where do we place the hedge?
Old crop wheat has a nearly 70 cent inversion to new crop. Old crop soybeans have an inversion to the Sept. & the carrying charges in corn are not sufficient to carry a $4.50 bushel of corn from March to May.
If I were handling the export desk & If I had a sale for the last week of April or for May out of the St. Lawrence for Mpls wheat, I’d buy the futures & let the short deliver it to me.
Two months ago, Mpls March was 21 over the May; currently it is in excess of 80 cents.
These are demand markets. It’s tough to hedge into inverses, or a market in which you sense could invert.
The more speculation, the better.
Old Crop OI:
Compared to one year ago. Large corn traders own 4,500 fewer corn contracts & are short 18,000 more; commercials are long 92,000 more contracts & short 80,000 more contracts than one year ago
Large traders own 16,000 more contracts of beans & are short 19,000 less than one year ago; commercials are long 72,000 more contracts & are nearly 100,000 more contracts short than one year ago.
Large traders own 6,000 more wheat contracts & are short 9,000 more than year ago; commercials are long 26,000 less & are short 30,000 less contracts than one year ago.
Obviously, there is a lot more grain moving to market, than one year ago. The above data does not suggest massive speculation.
The routine problems:
1- No one knows, in general, what the export book is for gulf elevators, or any elevation facility for that matter.
2- We have seen a wide swing in ocean freight.
3- When an export sale is made, the trader assumes a position of responsibility: will the vessel arrive on time, or will there be a storm? Will there be a long line up to load? Will it be raining? Will the incoming barge or rail cars arrive on schedule? Export elevators are not storage facilities.
4- A snow storm can cause a migraine if you are on a tight train schedule.
5- Even in good weather, I’ve had rail cars and before the big trains, had 50 cars sitting without explanation on a siding.
6- I have not dealt with a railroad for many years, but often the IRS could be more responsive.
7- Time is crucial in these types of markets.
8- Ethanol plants are out-of-position hedgers. They are unlikely to make or take deliveries.
9- Ethanol usage has made and is going to make corn more inelastic.
In the rare tight market, if you control the warehouse receipts within the delivery switching district, you then own Park Place & not Baltic Avenue.
If I were buying grain at current prices, I certainly would expect a greater margin; too much risk.
The folks handling the hedging for the big users and exporters have a sense of value. Very few speculators intimidate large commercials.
Due to the margin call pressure and concern about credit lines, I suspect there have been a few recent trades into stronger commercial hands, at the sacrifice of basis levels, to free up liquidity.
I recall the days of 1/8 price swings & when a ½ cent move got our attention. No, speculators and the more we can bring to the table, are a good thing. The basis is locational, time sensitive & incorporates a variety of risks and our relationships are changing due to a less elastic corn & soybean market.
The streets are littered with ex-export companies & domestic grain traders who failed to take all of the risks into consideration.
Edited by SeniorCitizen 1/29/2008 17:33
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Possible Raise of Daily Corn Limits
