I am back to work after a long and tiring relocation process, and it seems there will be some action in the grains in 2014. It seems volatility has increased a bit compared to november when I stopped and pretty much across all products( soy, wheat, oats of course...). Was it the same in january and december? I read a WSJ article about chinese investing( invading ) ag futures. Please come...Nothing better than chinese gamblers in my market... Thoughts?
I wonder which commodities. The chinese government has been wreaking havoc on cotton for quite a few years. Anyone long cotton would do well to know that the price can go through the floor if they decide at random to start releasing their stockpile. I know there are also strict import/export/arbitrage enforcements within China... not sure how that would translate into US markets (i.e., they can't deliver from their own product), but it may affect the incentives that Chinese traders face at home.
I am not an expert but I thought that China was buying US soybeans to crush at home. There is even a pdf about on cme site: http://www.cmegroup.com/trading/agricultural/cbot-soybeans-vs-dce-soybean-meal-and-soybean-oil.html Also they import a lot of dairy( see milk lately...), they consume hella pork, more beef...
Makes sense. Demand for meat, meat-related and dairy in China is huge and growing as incomes increase. I brought up cotton because they have a governmental policy of stockpiling, so this has gone beyond organic growth of demand. One of the cotton farming extension guys from UGeorgia told me that Chinese govt has stockpiled almost 3 years' global supply of cotton and could basically just choose to wipe the market at any time. Interestingly, I wonder if all the Chinese influx of corn/beans purchasing will lead to a much higher percentage of contracts actually held to delivery. That would sure make things interesting! ...though interestingly you were out of the markets as all the corn deliveries got finished resolving in Dec. Maybe the vol you are talking about will be anticipatory of the coming Fall/Winter harvest season?
Perhaps. There are also "Financial" reasons for higher vol in commodities : Retracement in stocks, institutions getting back after Dodd-Frank uncertainty, newly rich farmers think they can beat the market and leave the farm...
Funny you mention newly rich farmers. There are definitely those, but there are also a lot of highly leveraged folks entering the farm business following the recent regime of high ag commodities prices, expensive farm support, and inflation of farmland values. New farmers in particular are a very highly leveraged bunched. It seemed a near consensus at the farm credit meetings that we are in a farmland bubble a la the early 70's, and the commodity prices have already started to fall. Whether or not this translates into tradable delta or just more vol remains to be seen -- the latest farm bill insulates farmers more than ever from bad decision-making/bad luck with commodity prices.
Thought folks might find this interesting. It is the papers archive for NCCC-134, a USDA multi-state project for research on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. http://www.farmdoc.illinois.edu/nccc134/Year_search.asp?Type=Year&Year=2013