Corn prices going berserk

[Anonymous]

The Cattle Report had a good column on the corn estimates that I agree with. They suggest that USDA needs to start updating their estimates more frequently, maybe even weekly. That seems to me like it would sure help take some of the volatility out of the markets that the professional paper traders orgasm over.

Are you sure that the volatility is a bug of the model? I am becoming more and more convinced that there has to be some back channel, or maybe even explicit reward to these idiots for their horrible track record. How many times can they be wrong before we start to see a pattern. Report comes out, speculators trade on the report. Correction of report comes out, speculators trade on the correction. Correction of the correction of the report comes out, speculators trade on the correction of the correction. Wash, lather, repeat. In the meantime the actual producers are being yanked back and forth and having the crunch put to them, for what? So a bunch of speculators can skim a pile of cash off the market. How about we insist that you can't sell a contract that there isn't commodity to deliver? Any other time that I try to sell something that only exists on paper it is called fraud, but now it is vital to the functioning of the market? I am not real smart but something about this whole system stinks. One thing is for certain, it was not designed by or for the producer.

AMEN--but it seems like that everytime they try to reguire that - the Wallstreet Fatcats that are the ones profiteering have the lobbying power to stop it....Been tried on oil, grains, and cattle/beef over the last few years--but the big money folks seem to have too tight a hold over D.C.....

 

[Whitewing]

So much for that hope and changy thingy.

 

[Texan]

How about we insist that you can't sell a contract that there isn't commodity to deliver?

I don't disagree with you in principle. But, couldn't a lot of hedging opportunities for cattle feeders dry up without the paper traders?

 

[okfarmer]

Shorting and not actually owning what you are selling is what brought on all this trouble in the stock market. It is funny how the uptick rule was set in place after the crash of 1929, then removed in 2007 and how quickly we saw the after effects again. To me having to own what you are selling is not government intervention or regulation, but honesty. If I were to sell something like a car to anyone without actually owning it, it is called fraud. I think it should doubly apply when you are affecting the price many others are purchasing at or being paid. If you are wondering, I got my law degree watching Judge Joe Brown.

 

[burnt]

How about we insist that you can't sell a contract that there isn't commodity to deliver?

I don't disagree with you in principle. But, couldn't a lot of hedging opportunities for cattle feeders dry up without the paper traders?

You just nailed the reason that futures markets were first started. If everything were based on cash sales, we would see prices go almost to zero at harvest and sky high in the off seasons.

Futures were started to give liquidity to the market and smooth out the highs and lows that strictly cash sales would precipitate.

Sure, there is a lot of abuse of the system, and some weird situations come from it, but how do we know that it wouldn't happen anyway in a strictly cash market?

Furthermore, whenever someone forward-sells calves, for example, contracting calves in June for 650 weight, November delivery, would you call that selling futures? You do not have the 650 lbs. when you make the contract, so by the reasoning of some, you are being fraudulent because you are selling lbs. you do not have, but are planning to have in the future.

 

[rancherfred]

Nope, you aren't doing anything fraudulent because you are legal obligated to deliver what you have sold at the designated time. If I sell something for future delivery, such as we are doing with our calves, we are entering a binding contract with legal ramifications if we don't deliver.

We sell some of our crops into a purely cash market and there isn't wild swings in prices, the prices are much more stable than the commodities that have futures markets.