Jun

1

 As the month of June arrives and heralds in the dog days of summer for equities and debt, it is inevitable that a trader's fancy lightly turns to thoughts of grains. Over the years, untold fortunes have been made and lost during the summer grain markets. I have participated and traded in these markets off-and-on since the mid-seventies; starting in the soybean pit at the Mid-America commodity exchange, and then on the floor of the CBOT in the soybean pit. I went on to trade 30 year treasury bond futures for almost 25 years, but when the bonds went to the screen, I traveled full circle and finished my career back where I started, in the bean pit.

The beans had changed dramatically from when I first stepped into the pit in the seventies. The commodities markets back then were relatively inefficient, and dominated by heavy retail participation. Busy summer markets would see runners lined up 10 deep trying to get retail orders into the pit to their filling brokers. The commercials did manipulate the market, but there was still an a value oriented element to pricing.

My second time around however, saw a market dominated by commercials (hedgers) and commodity funds. In addition, there were now options on soybeans futures; and indexes and etfs were beginning to emerge. The eventual result was the financialization of commodities. Beans were now lumped together with other commodities into one asset class.

As I contemplate my return to trading beans, I wonder:

If beans have lost their uniqueness, price discovery and risk transference functions, due to financialization

If given the near extinction of retail participation, and the almost total dominance of professional and algorithmic trading, if readily "available" cognitive reference points that are the providence of the retail trader, still exert their influence on bean pricing.

If the change from a commodity to a financial instrument means that at times, price drivers for soybeans may have nothing to do with soybean fundamentals, and everything to do with their inclusion in the commodity asset class

If I'm competing against professionals in a relatively illiquid market, do I want to venture away from my core competency to "play poker against a guy named doc"


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  1. jeff humbert on June 2, 2014 12:19 pm

    In the case of the grains, the basis speaks in a very loud voice. The basis is changing partly because to the increase in storage on farms, thus lessening the importance of a traditional role of the local elevator. The markets have adjusted to the changes, and the astute grain trader can trade on this, but that's as much as I care to add.

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