Death comes to us all. Life's but a walking shadow | By coincidence I've been wondering about similar questions myself because I've been looking at the Commitment of Traders for new crop soybeans and it looks like the major players in that market right now are the swap dealers and the non-reportable speculators. Amazing.
But first, in response to both Ray and Maizeing, As far as I can see the only real link between the futures market and the cash market is the threat of delivery and as Ray has pointed out the threat of delivery isn't much of a threat any more because the delivery rules are so convoluted and restricted. Did you ever read the delivery rules and procedures. It would take a Philadelphia lawyer to force delivery and I'm sure by the time you did force delivery or reached a settlement you would't need the beans.
And Maizeing, you are undoubtedly correct when you say first the basis then the spreads then futures but what futures are you talking about? Next spring's futures? That's the other flaw in the system. Take for instance new crop corn. For almost two months now traders, aka. speculators have been trying to ,convince everyone that corn isn't worth $3 but the evidence is pretty clear that precious little corn has been sold for anywhere near that price (If you believe that commercial shorts represents farmer selling it's only about 1.5 billion bushel hardly 10% of the coming crop. And a good deal of that at $5+.) By your logic we won't begin to know the price of corn until January.
So it looks to me that the whole premise that futures helps determine the price is actually pretty tenuous. It even looks more bizarre when you consider that the vast majority of the contracts are held by people who don't actually have any interest or involvement in grain production. A full three quarters of both the corn and soybean contracts are held by banks, funds and speculators. Who are they to tell us what the price of corn and beans should be and why should we even listen? We're the fools here, and I mean both farmers and endusers. The local ethanol plant here bases their price off the nearby futures but almost always has to pay a hefty positive basis to get the corn it needs.
And I don't know how you can claim that the futures market is efficient. It is clear that the futures market price beans far too low last winter and as a result we are out of beans a month early. I know that some of you will claim that "We're not out of beans." but the evidence is pretty clear that "We are out of beans!!"
Good question John but I'm baffled too.
Edited by 1234 8/24/2014 18:20
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The "out of soybeans" thread below.
