Death comes to us all. Life's but a walking shadow | First, a disclaimer. I don't know if anyone manipulates the grain futures market but all the examples of manipulation reported over the years it is clear that it is a possibility.
First it is clear that the only prices that count are the closing price for the market days during Oct for the Dec14 corn contract and the Nov14 soybean contract. Second, given the circumstances of this crop year, namely above average yields and low price any payout if there is one is determined by the difference between the revenue guaranteed (spring price x base yield x level elected) and the revenue to count (Harvest price x actual yield). Agavegoose has developed one plausible estimate of this which can be refined.
Now, what would it take to influence the price. We don't have all the information needed but we can begin to make some rough estimates. First, we know what actually happened during that period. Included below is table giving the daily prices and volumes for the Dec14 corn contract during the period of interest. We know that in order to raise the price the hypothetical manipulators would have to purchase enough contracts at a somewhat higher price to cause the price to rise. How many and how much higher? There are a couple of factors in their favor. One, anyone selling will try to sell at the highest price possible, anyone buying tries to buy at the lowest price. So all they need to do is to keep buying just high enough and often enough to keep the price going in their favor.
One measure of the absolute maximum that they would have spent can be estimated by daily change in closing price x's the total volume assuming that they purchased all the contracts offered for sale that day. That works out to be about 1.1 billion dollars over the month (see table).
But they might not need to actually buy all the volume. It might be enough just to keep it going in the right direction and natural inclination of the other market participants will do the rest. For example, there was and still are a whole population of short sellers who while might prefer the price to continue to decline know that eventually they muct buy to liquidate their position and fix their profit sometime in the next two months. Worse yet, once the price starts to rise their maximum gain diminishes with the rising price. So all the manipulator needs to do is reverse the price decline, start the price rise and "Fear takes over".
Once they have started the price rise they only have to intervene whenever the price falls. If you look at the table they would have only needed to intervene six times over the period for a total cost of about
$265 million dollars. But at the end of the period those futures contracts would be worth $1.57 billion dollars more.
Amazingly a manipulator could have raised the price and made an extra $1.2 billion dollars for their trouble.
For what it's worth.
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Incentive for Market Manipulation
