Death comes to us all. Life's but a walking shadow | The mechanism by which the volume of corn movement gets translated into cash price then to the futures price is certainly plausible. I've tried to illustrate this with a rough graphic below and maybe you can correct me if it isn't quite correct. Basically, as the volume declines at a certain the basis rises and the buyer offsets that increase by buying the front month futures with the expectation that they will sell after the futures increase and recovering the increased cost. Conversely as the volume increases over the required volume the buyer lowers his basis and sells the nearby futures eventually collecting the difference along the way.
I have some questions about how well this actually works in the case of corn for instance. My first question is, how many farmers are in the position to follow the market that closely and buy & sell futures in order to offset the price moves? My own opinion is that this works great for everybody involved in the market except the producers and the small end users like dairy farmers etc.
However this still leaves the whole question of early season price setting open. I would like to hear your (and others) thoughts as to this as well.
Edited by 1234 8/25/2014 07:12
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Maizeing, continue discussion on price setting
