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cash vs futures
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Posted 12/17/2014 10:13 (#4246409 - in reply to #4246186)
Subject: RE: Mazeing, please.



Death comes to us all. Life's but a walking shadow
You can hold that view (the basis follows the spreads) of how the market works but it isn't the only valid operational theory. It depends completely on your perspective and changes with the situation. Your te heory essentially says that futures traders anticipate the future price and collectively price futures accordingly. That in turn causes buyers and sellers of the actual commodity to adjust both their near term and long term prices (aka basis follows spreads). This view gives more credit to the futures speculators than commercial interests.
The other view is that buyers and sellers make decisions about prices both near and long term which cause the speculators to re-evaluate prices. For instance, it is quite apparent that this fall producers refused to sell at the prices the speculators anticipated (and some vociferously insisted that they must). Buyers were forced to re-evaluate their offers, had to raise them and as a consequence the futures speculators had to readjust futures prices. That's what the last two months rally was all about.
The picture looks the same, it just depends on to whom you ascribe the motivating factor. For instance in Feb speculators will take positions in the new crop based on how they think producers will respond to prices by anticipating planted acres. We won't know how producers responded to prices with any certainty until late June. The question becomes who's calling the shots here, speculators or producers? I think you would have to say that ultimately it's the producers but the price gets implemented by the speculators (and some producers acting as speculators).
In contrast, next summer after t he crop is planted and weather becomes important it will be primarily the speculators who set the fall price.
For what it's worth
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