Death comes to us all. Life's but a walking shadow | The other day John Burns raised an interesting question as to whether the futures market can really function efficiently as a price discovery mechanism. I want to rephrase the question just a bit. Can the futures market be an fair and effective price discovery mechanism if there is no real threat of delivery?
The reason this question keep coming up is that unlike farmers most of the market participants neither have the intention nor the ability to deliver or take delivery. I was looking at the Commitment of Traders data for soybeans for instance (below) and you can see from the first chart that all of the categories are well balanced except swap dealers and non-reportables (small speculators). In fact when you look at the net positions of each category it be comes clear that the swap dealers and small speculators seem to have their own little party going on(second chart).
Oh, by the way notice the big deflection in the commercial net position. You can explain this as early farmer selling followed by the recent very dramatic soybean export sales bookings.
So, my question again, does it matter?
By the way notice the 200,000 contracts that the commercials hold. They amount to a billion bushel of soybeans or about 28% of the crop in contrast to corn where barely 12% has been accounted for. This is interesting because the 20 million Metric tons of soybean exports already booked represent roughly 25% of the expected crop. In other words there are still a lot of soybeans to sell but not nearly as many as you might think.
Edited by 1234 8/26/2014 14:44
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 (14 soybeans net position-page-001.jpg)
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14 soybeans net position-page-001.jpg (63KB - 45 downloads)
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John Burn's question the other day.
