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Old Nov 22, 2011, 10:04 AM
Radix malorum est cupiditas
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Originally Posted by Mr. Wiz View Post
If you were a big enough player you could game the system, couldn't you? Think about it, you have all these tankers filled with oil but instead of waiting for the price to go up you just start bidding it up yourself thereby adding value to your stores all by yourself. Then you can sell it at the higher price. As we've seen the price goes up faster than it goes down so you could sell off that oil that was originally in the stores for the higher price. As you sell off and your stores dwindle you sell it for less and less. Now that the price is down you buy up an bunch and fill the stores again and the process repeats itself. Heck, the whole industry could do this and we the actual end user get to pay the price. It's almost as good as a license to print money.
You are only looking at half the situation, when stockpiles build, traders will sell, driving the price down. Every contract has a buyer and a seller, every trade has one side that wants the price up, and one that wants it down. By this logic every producer could drive prices up by stockpiling - when in fact building inventory drives prices down.
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Old Nov 22, 2011, 10:16 AM
In Development Now
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Joined May 2005
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Originally Posted by Treetop View Post
I appreciate your honest answer. I certainly have a lot to learn about trading commodities. But rather than use an opportunity to educate, three posters here have used the opportunity to declare I don't understand the free market, a pretty broad term and certainly simpler than commodities futures.

As to the trading, like Jim said about the folks who made money on futures, when they wanted to make peanut butter, don't these big outfits, like Smuckers, actually bypass the futures trading by securing contracts on their own with suppliers? It seems to me, this was an important issue when oil skyrocketed. SW Airlines had far reaching advance contracts and were buying jet fuel at about one third of the going price. I assumed they agreed to these contracts directly from suppliers and bypassed the oil futures markets. Is this not correct?

If it is, aren't the commodities markets becoming redundant, if the buyers and/or sellers are large enough concerns to act without the market?


And thanks for your thoughtful and instructive posts on the subject.

There is zero difference between a futures contract from the chicago board of trade and a contract between a buyer and producer. They are the same if the seller produces the commodity and the buyer uses it.
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Old Nov 22, 2011, 10:21 AM
Time for me to Fly...
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United States, MI, Fenton
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Originally Posted by radix2 View Post
You are only looking at half the situation, when stockpiles build, traders will sell, driving the price down. Every contract has a buyer and a seller, every trade has one side that wants the price up, and one that wants it down. By this logic every producer could drive prices up by stockpiling - when in fact building inventory drives prices down.
I agree but as I said before watch how it works. It goes up fast and goes down slowly. You just ride the wave. And also, why did the people in Norman's example hold tankers full of oil off shore? Were they trying to drive the price down by stockpiling? No, they waited for the price to go up. I know how supply and demand is suppose to work but I believe there are players big enough to influence the market to their benefit and that's not in the best interest of everyone else.
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Old Nov 22, 2011, 10:29 AM
Time for me to Fly...
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I don't know about all this. Somehow there are these middle men pushing buttons on computers that make their accounts magically grow money. They don't produce the product, they don't transport it, they don't store it and they don't refine it into anything else. Yet somehow people seem to think their button pushing provides some value. It seems the only value it produces is profit for themselves and if it didn't do that, they wouldn't place themselves in that position in the first place. I dunno, maybe it provides market stability but I remain unconvinced.
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Old Nov 22, 2011, 10:45 AM
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Sometimes the middlemen magically turn a pile of money into nothing. Nobody cries for them when that occurs.

There is value in taking risk off of others. A great deal of my paycheck is paid by profits from underwriting risk. The farmers don't have to starve in bad years, but they don't make as much in others.
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Old Nov 22, 2011, 10:48 AM
Radix malorum est cupiditas
radix2's Avatar
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Originally Posted by Mr. Wiz View Post
I agree but as I said before watch how it works. It goes up fast and goes down slowly. You just ride the wave. And also, why did the people in Norman's example hold tankers full of oil off shore? Were they trying to drive the price down by stockpiling? No, they waited for the price to go up. I know how supply and demand is suppose to work but I believe there are players big enough to influence the market to their benefit and that's not in the best interest of everyone else.
I don't take Norman's example as an accurate description of reality. There are millions of new drivers looking for fuel across the developing world, outside of the depression reducing demand in the developed world, oil would be much higher and will be again when we finally get moving again. If one has confidence to build stock for a future gain, it has to be based on a belief that current conditions are the anomaly. I.e. short term glut in a tight market.

Every producer in every market has the same basic interest in keeping prices up - big player and small- but the antidote is large and visible markets and futures that allow buyers to bet against building stockpiles to foil the desires of the producers. Private side deals don't seem the way to keep prices down or to let buyers find the best deals or to secure supplies at times of over supply rather than potentially tight spot markets.
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Old Nov 22, 2011, 10:50 AM
Time for me to Fly...
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Originally Posted by saltyzoo View Post
Sometimes the middlemen magically turn a pile of money into nothing. Nobody cries for them when that occurs.
But as a general rule they don't. If they did, they wouldn't remain in business too long.

Quote:
There is value in taking risk off of others. A great deal of my paycheck is paid by profits from underwriting risk. The farmers don't have to starve in bad years, but they don't make as much in others.
So you see these traders kind of like insurance. Hum.... Interesting... I'll have to mull that over a little.
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Old Nov 22, 2011, 11:02 AM
Radix malorum est cupiditas
radix2's Avatar
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Quote:
Originally Posted by Mr. Wiz View Post
I don't know about all this. Somehow there are these middle men pushing buttons on computers that make their accounts magically grow money. They don't produce the product, they don't transport it, they don't store it and they don't refine it into anything else. Yet somehow people seem to think their button pushing provides some value. It seems the only value it produces is profit for themselves and if it didn't do that, they wouldn't place themselves in that position in the first place. I dunno, maybe it provides market stability but I remain unconvinced.
The only secure profits in future trading come from bid ask spreads and are in the tiny fractions of percent. Additional basic profit comes to long traders in terms of capturing long run inflation - obviously these are not real profits but an offset to loss of monetary value. Everything else is a zero sum game. At contract expiration one party would have been better buying at spot. You could call this gambling, and it may be, but it also is people who value defined prices over uncertainty. Market commentary is full of nonsense statements - for example they are always talkin about people " getting out of stocks and buying bonds ". Fact is, every share that is sold is bought by someone else.
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Old Nov 22, 2011, 11:12 AM
Time for me to Fly...
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Originally Posted by radix2 View Post
The only secure profits in future trading come from bid ask spreads and are in the tiny fractions of percent. Additional basic profit comes to long traders in terms of capturing long run inflation - obviously these are not real profits but an offset to loss of monetary value. Everything else is a zero sum game. At contract expiration one party would have been better buying at spot. You could call this gambling, and it may be, but it also is people who value defined prices over uncertainty. Market commentary is full of nonsense statements - for example they are always talkin about people " getting out of stocks and buying bonds ". Fact is, every share that is sold is bought by someone else.
But who are these people that value the defined prices, end users or people that place themselves in those middle positions? I mean if those that actually take delivery find value then who am I to argue. If on the other hand, the only ones finding value are the traders then the value is self serving and passing along the cost to the actual users is harmful to them.

At this point I'm beginning to see the point you are making but I still want to give this whole thing some more thought before I change my position.

Thanks!
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Old Nov 22, 2011, 11:22 AM
On the Edge of Space
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Exit 4, South Jersey, USA
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I think a lot of the ultra low interest money available from QE2 was going straight into commodity spec. That alone would have an inflationary effect. It's debatable what will happen if interest rates start to rise. It could cut into margins, making spec less attractive, or just get rolled into the price, making consumers pay more.
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Old Nov 22, 2011, 11:30 AM
Radix malorum est cupiditas
radix2's Avatar
Joined Jul 2000
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Originally Posted by Mr. Wiz View Post
But who are these people that value the defined prices, end users or people that place themselves in those middle positions? I mean if those that actually take delivery find value then who am I to argue. If on the other hand, the only ones finding value are the traders then the value is self serving and passing along the cost to the actual users is harmful to them.

At this point I'm beginning to see the point you are making but I still want to give this whole thing some more thought before I change my position.

Thanks!
The question you are hung up on is the interesting one. Is it possible that the large volume of trades by speculators can fundementaly shift prices away from the supply demand anchor? There are commentators making this claim across all markets (like HFT trades in stocks) - my take is that there may well be some sensible limits needed ( like on leverage ) - but most of the arguments are a product of our troubled times, there are plenty of historical examples of volatility and panics in markets not served by derivatives.

I think it is fair to say that virtually all producers and buyers find value in defined prices. Companies would be foolish to risk themselves on spot pricing and be unable to plan and convince others of their margins. Beyond futures, options are used to bracket conditions and provide a relief valve on business risk.
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Old Nov 22, 2011, 06:09 PM
Thanks for the Fish!
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Land of cajuns
Joined Dec 2001
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"I've had people calling me wanting to work," Smith said. "I haven't turned any of them down, but they're not any good. It's hard work, they just don't work like the Hispanics with experience."


http://www.huffingtonpost.com/2011/1...n_1023635.html
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Old Nov 22, 2011, 10:32 PM
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Beaumont ,peoples republic of Kalifornia
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Let me correct this part
Quote:
Potato farmer Keith Smith saw most of his ILLEGAL immigrant workers leave after Alabama's tough immigration law took effect,
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Old Nov 22, 2011, 11:46 PM
On the Edge of Space
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Exit 4, South Jersey, USA
Joined Dec 2007
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Americans can do the work, it'll just take some time. You don't turn into a field hand overnight, it doesn't work that way. It's tough tough work, you have to get accustomed to it. Probably take most people at least a month of work until they're any good for it at all. Farmers will have to automate or pay what it takes and pass the cost on, or we'll have to import our food, or get a handle on a guest worker program. Take your pick, those are the options.
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Old Nov 23, 2011, 08:56 AM
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Joined Sep 2006
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When oil was $150 a barrel we paid close to 4 dollars at the pump. Now it is around $100 (it was less reciently) and we are paying $3.50 and demand is DOWN. This is BS. This is not just supply and demand. This is manipulation at many levels. Speculation and control of the supply. It was admitted to congress that 30-40 percent of the cost of a barrel is speculation. This has got to stop.

http://www.huffingtonpost.com/2011/0..._n_861326.html
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