Banker, grain dealers blame hedge funds for risking wheat

[Hannah Bell]

"What is the true price of wheat?” asked Tippens, president and
chief executive officer of Canadian State Bank. "I don't think
anybody knows.” Certainly, it's not $10.68, Tippens said. Or it
wouldn't be at that level without billions of dollars from hedge
funds that have artificially caused the price to soar since the
first of the year...

one year ago the price of the July 2007 wheat contract on the Kansas City market was $4.88 a bushel. Two years ago...it was $4.05...

The difference?

The Commodity Futures Trading Commission — the government agency that regulates the grain trading markets — OPENED THE MARKETS TO UNLIMITED TRADING BY GIANT HEDGE FUNDS LAST YEAR, said Joe Neal Hampton, president of the Oklahoma Grain & Feed Association and Oklahoma Agribusiness Retailers Association.

"It is estimated that $8 billion has flowed into ag futures since the start of the year,” Hampton said. "They never have any intention of owning that grain...."

http://newsok.com/article/3220342/1206414521


I've read elsewhere that hedge funds own the equivalent of two entire harvests.

[sam sarrha]

1. STOP THE CLEPTOCRAT FASCISTS..!!!!!!

[lapfog_1]

2. Well, they had to something

after all, those mortgage backed securities were all going down the toilet. The Hedge funds had to find an alternative place to create yet another bubble and rape the small investor ( and anyone on the planet that eats grains!)

[Speck Tater]

3. And the parasites find another way to get money for nothing.

The problem is that there is a whole class of people who think they are entitled to unlimited money in exchange for no productive work whatsoever. What they are too stupid to realize is that they are killing the goose that lays their golden eggs; namely, the real economy, and with it, the lives of the common people.

[unblock]

4. if this is right, someone could make a TON of money betting on the price to plummet

so why don't the hedge funds dump the contracts, or some other hedge fund come in and short wheat? if the price is so much higher than the fundamentals, the price surely must come down eventually.

except that, as with all markets, it's remarkably difficult to tell if you're in a bubble until it actually bursts. what about oil? most people seem convinced that the 5-fold increase since shrub took office is legit, due to chinese/indian demand and the falling dollar and peak oil. but if and when prices return to even $80/bbl., people will look back at $119 and say that a bubble was obvious. unless oil keeps going up and we never see it as low as $110 again.


as for hedge funds owning the equivalent of two entire harvests, this is not atypical in futures markets, where 90+% of contracts are closed out prior to the last trading day. the vast majority of holders of futures contracts have no intention of actually buying or selling the underlying commodity, they're merely making an assessment about the price. call it speculating if you want a negative spin, or call it market forces trying to set the price more accurately for everyone if you want a positive spin. in and of itself it doesn't mean much of anything.

yes, speculators can occassionally create bubbles. but most of the time, speculators help set prices accurately. maybe hedge funds are abusing their position and manipulating the market, i don't know. but complaining that they never had any intention of owning the grain is a facile argument, at best.


i also find it interesting that the article doesn't mention any of the reasons why hedge funds might be driving the price up. as if wheat has no business going up when the dollar goes down and inflation is an increasing concern. oh, and let's not mention the 50,000,000 acres of dought in china.

[Hannah Bell]

6. You missed this:

"the government agency that regulates the grain trading markets — OPENED THE MARKETS TO UNLIMITED TRADING BY GIANT HEDGE FUNDS LAST YEAR, said Joe Neal Hampton, president of the Oklahoma Grain & Feed Association and Oklahoma Agribusiness Retailers Association."


The market has changed. Most of the players used to be people with some connection to grain, either as producers, brokers, users, etc. By opening to unlimited trading by hedge funds with no relation, the money involved can dwarf the size of the grain trade.


"as if wheat has no business going up when the dollar goes down and inflation is an increasing concern."

should it more than double?


"oh, and let's not mention the 50,000,000 acres of dought in china. oh, and let's not mention the 50,000,000 acres of dought in china."

China produced more wheat in '07 than in '06. It's not Chinese deficit driving this market: the big production drops were in the US, the EU, & Australia, & except for Australia, the reductions were driven by low prices, not weather.

[unblock]

8. i saw that. trading by speculators doesn't mean distorted prices

in fact, speculators usually make prices more accurate, and more quickly reactive to market forces.
why? because people where trading is limited to actual business needs for grain itself, you might go to market once a year and therefore have very little influence on prices. speculators go in and out on a regular basis in response to relevant news, so prices quickly move in the direction they should.

it's true that the amount of the movement can get distorted, but this can happen in any market for a variety of reasons. the mere presence of speculators isn't the only cause and it's not at all clear that they're to blame in this case, even assuming that prices are in fact distorted.

if you are so convinced that wheat prices are so high, open up a futures account and short a wheat contract. you'll be doing your part to bring prices back in line and you'll make money to boot.

assuming you're right, of course.


the verdict on the dought for '08 is not yet in and any production drop puts upward pressure on prices, regardless of cause. there have always been markets where prices soar because prices were so low before that producers cut back too much.

texas, in particular, is well known for its boom-bust cycles in just about any industry it tries.

[Hannah Bell]

9. This is an article of faith.

<<in fact, speculators usually make prices more accurate, and more quickly reactive to market forces.>>

"Market forces" = the community of those wishing to profit. "Market forces" not = the community of those wishing to eat.

[unblock]

11. by "market forces" i meant actual news relevant to supply and demand

the point is, speculators can lose their shirts if they keep betting on prices to move further away from fundamentals.

if prices are really way too high, a good speculator can make a ton of money shorting wheat and doing his part to drive prices back down. conversely, the speculator who bets on the prices to continue to rise even more can lose a ton of money.

if prices are really so out of whack, why aren't the speculators taking their profits from the price rise and shorting wheat to make more money on the inevitable price decline.


no one here is offering a theory as to how speculators are causing a sustained period of incorrectly high prices when in fact speculators have a huge incentive to make prices accurate.

[Hannah Bell]

12. Because they hold futures contracts at the higher price. Someone has to buy to realize

the "profits".

The total international export trade in rice is under 20 billion dollars. The CBOT rice pit is 10 guys.

Capital in the largest hedge fund = 28 billion dollars. Total hedge fund assets estimated at 2 trillion.

Rice prices have risen more than any other grain, despite the fact that on fundamentals, supply is less tight than others. Because it's the smallest export market of all grains, it's easiest to swamp with outside $. Rice trading volume has increased x3 over the last year.

[Monk06]

5. Simple (easily said) solution ban derivatives. If you want to make

a profit by speculating on the price of a commodity
you must buy and take delivery of said commodity and
only then sell it on the open market.

When you buy a car or a house with the intention of
reselling you have to take formal ownership.

Why is Wall St exempt from the simple rule: you want
it you buy it.

[crimsonblue]

7. This whole "wheat shortage" is BULSHITT.

Take a drive to Hutchinson, KS and look next to the grain silos. I've seen atleast 4 or 5 piles of wheat that are 60-70 ft tall just sitting on the ground, preparing to rot. Kansas throws out millions of bushels of wheat every year, and thousands of farmers across the country are PAID to NOT GROW ANYTHING. How the fuck has the sheer dumb-fuckery infected every level of government and society? Fuck!

[Kip Humphrey]

10. BLOOD WHEAT TRAITORS! ... Not "traders", traitors of humanity! /nt