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Chip's Chore Time

RSS By: Chip Flory, Pro Farmer

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm. In fact... I don't even have horse chores to do any more!

Does Congress have time to 'fool' with index funds?

Jul 08, 2009
Chip Flory

 

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.

I was thinking…

... about where we're headed from here -- on many different levels.

I know where I'm headed next week... the 2009 Pro Farmer Leading Edge Conference in Des Moines, Iowa. The focus of LEC is going to be the economy and it's impact on ag markets and agriculture in general. A favorite Pro Farmer presenter will be back to talk economic conditions -- Dr. Vince Malanga, president of LaSalle Economics, Inc. This guy nailed the outlook for the economy last year... including the push for economic stimulus from Washington.

Which got me thinking about the "stimulus package." You know how you sometimes have to live through something -- or at least "get into a scenario" -- before the outlook becomes more clear. We're well into the stimulus package... and there is still time for the package to actually provide stimulus. But now there's talk the "states" are finally starting to use the stimulus money the way they are supposed to. Question... How were the states using the money up to now!?!

But then I thought about the infrastructure spending that has started... and is yet to come. That should help the economy... right? Except for the fact these jobs will be temporary jobs and cost billions of dollars that eventually need to be paid back. How does that help the long-term economic security of this country?

And lost in the economy and a national energy policy and a national health policy and a new nuke treaty with Russia and North Korea's bad-boy actions and everything else a well-intentioned and (overly?) enthusiastic President Obama is tackling is an economic train wreck that USED to be a front-burner policy issue... saving Social Security. What happens when more Baby boomers call it quits (if they can) and turn to Social Security to at least supplement retirement? Will there be "actual" money in the system to write checks -- or will the Treasury Dept. fire up the printing press again?

And with all of that going on... Congress has decided to crack down on speculators in the commodity markets. Is there a need to put limits on how speculators "play" in the commodity markets? Well... it depends on the speculators. You know by now there's a difference between "traditional commodity funds" (these funds will trade on both sides of the markets), large specs, small specs, individual speculators, local traders and (look out!) "index funds." The "problem," if there is really a problem, is the index funds.

One of the best definitions of index funds I've heard is "Zombie Funds." These funds don't know what the fundamentals of the markets are... they don't know the technical conditions of the markets... they don't care. And these funds are long only. They only buy futures... the only time they sell is when they are liquidating long positions. Oh... and they will liquidate contracts held in the front-month contract ahead of the delivery period and roll the long positions out a full year. When these index funds entered the scene, they were forced to trade with the same position limits as traditional commodity funds, large specs, small specs, individual speculators and local traders. Over time and because there was a huge demand for investment in these index funds, the exchanges continually increased position limits to allow the money into the market. Now, Congress wants to limit the positions the Zombie Funds can hold. Which is fine... except for the fact there could be a long transition period in which the index funds are liquidating long positions without rolling those positions forward. That, my friends, will bring some hefty pressure to futures.

Or... should I say, is bringing hefty pressure to futures. The Congressional hearing yesterday that included a mention of potential position limits for index funds in commodity futures was enough to spur a round of liquidation -- and that liquidation probably didn't include any Zombie liquidation. What's happening now is the liquidation of long positions held by traditional commodity funds, large specs, small specs, individual speculators and local traders... the traders that pay attention to market fundamentals, technicals and policy changes that could impact trade. They may be exiting the long side of the market before the index funds start a liquidation phase. I know... scary!

On a side note, the impact of yesterday's hearing is being felt in the stock market, too. The exchanges are publicly traded companies... and the value of exchange stocks are falling today in anticipation policy changes will result in lower volume (and profits) for the exchanges. And lower volume means lower liquidity in the markets. It's going to be a tough transition... with a long list of unintended consequences this Congress will undoubtedly (once again) deny it caused.

... about what makes the new profarmer.com different from other web sites. You know... why you should subscribe to Pro Farmer newsletter to maintain access to profarmer.com.

First, I know what many of you might be thinking: "I won't pay for access to any web site... there's plenty of free sites out there that are 'good enough.'" And you're right... there are plenty of free sites out there, including the wonderful AgWeb.com! But don't think about profarmer.com as the only thing you get with a Pro Farmer Membership. In fact, the Pro Farmer web site is a Member benefit that comes with your Pro Farmer newsletter. If you're not familiar with Pro Farmer newsletter, check out our latest issue.

So... what makes the site different? As I said, access to the site comes with your Membership. That means it's a site where Pro Farmer Members can gather in the cyber-world to share ideas, participate in discussions, and get daily insights from the editors and consultants of Pro Farmer.

Daily services available to Pro Farmer Members on profarmer.com:

News From Around the World: This is an executive briefing produced by PF news editor Roger Bernard each morning. Roger gets you ready for the day with a summary over overseas trade, links to all the day's reports, gives you a summary of the previous day's and overnight trade action and gives you a link to the National Weather Service 6- to 10-day forecast. He also scans The Wall Street Journal, the New York Times, the Washington Post and regional newspapers like the Des Moines Register, the Omaha World-Herald and the Fargo Forum and gives you the top headlines from these papers each day to keep you on top of the news (including the spin each new outlet is putting on that news!).

Inside Washington Today: PF Washington consultant Jim Wiesemeyer is the Dean of Washington ag reporters. His coverage and analysis of pending legislation and policy issues is so on-the-mark that farm-state lawmakers are Pro Farmer Members just so they can access Jim's IWT each day. They know if they don't read IWT, they could be caught off-guard on some important issues. If you don't read IWT, the same could happen to you!

From the Bullpen: PF Sr. Markets Editor Julianne Johnston's daily report is a great place to start your day. She'll give you an update on overnight trade and the factors moving the markets overnight. She'll also preview the day ahead, including opening calls for the day's trade. But she doesn't stop there... you'll also find calls for the day's cash cattle and cash hog trade and she'll preview any report that's due for release that morning. (Note: Julianne is on vacation this week, the next "fresh" Bullpen will come July 7, but you can scan what she's done in the Bullpen archive to see what she offers Pro Farmer Members everyday.)

Marketing Toolbox: PF Sr. Market Analyst Brian Grete's daily blog has become one of my favorite spots to go every morning. He starts with "What Traders Are Talking About" where he details some of the things traders are talking about that might not be making headlines... yet. When you see something in this section of Toolbox, you know it's something Brian believes will become an important factor in grain and livestock price action. He wraps up Toolbox with "The Long and Short of it" -- a quick summary of where he sees prices headed for the day (maybe longer).

Your Precious Land: LandOwner Editor Mike Walsten talks the land markets -- values, rental rates, rental agreements, trends, factors impacting the outlook, etc... -- in his blog. He doesn't update the blog every day... just when he's got something important enough that he thinks all of you interested in the land market should know about. It's a great way to stay in tune with the land market and to get a peak at the kind of news, information and analysis he delivers in LandOwner newsletter twice each month.

Chip's Chore Time: You know about this one... but it's on profarmer.com as well as AgWeb.com to give you easy access.

Pro Farmer's Tech Talk: PF technical consultant Jim Wyckoff is one of the most respected chart-watchers in the business... and just happens to be my first boss at Pro Farmer! (Well... one of them... I had a lot of bosses when I started with the company!) When a market makes a major move, this is the spot to go to get an idea of what it means from a technical point of view... and what impact the day's action might have on upcoming trends in the commodity world. Jim doesn't cover just grains and livestock... he'll also comment on the energies, currencies and metal markets in Tech Talk.

And speaking of price action and charts, if you haven't seen the Streaming Quotes and Interactive Charts available at profarmer.com yet, you've got to take a look. This (seriously) is one of the best price and charting packages on the web... and you get it as a Member benefit when you join Pro Farmer. (Note: We're still working with our web developers to improve the site. One of the things on our to-do list is to make the "Grains" page the "default page" for streaming quotes. For now, financial market quotes are the default page. Just scroll to the bottom and you'll find a link to the Grains page. We'll also add livestock quotes to this offering later. Oh - and a "hint" on how to use the streaming quote page. In the morning when you fire up the web, open the streaming quote page first, then minimize it and open another browser to use for your information gathering. That way, the quotes page will continuously run in the background and will pull in quote updates for you throughout the day -- all you have to do then is "maximize" the page from the tiles at the bottom of your screen for a quick check of the quotes.)

All the quotes you see on profarmer.com are from the electronic trade. That's where at least 80% of the volume takes place in ag market trade.

Top Stories: All of your Pro Farmer editors are responsible for this section of profarmer.com. And while it's "just" another news feed... this one is different. We really don't mind if our news feed is updated with one or 100 new headlines each day. What we really do care about is the quality of the news on profarmer.com. The news you see on profarmer.com really matters -- or it won't be on our site. And the news comes with a twist. The top of new stories is just that... news. But, at the bottom of the item one of the Pro Farmer editors might add a note to explain why this news is important and what it might mean to the markets. It's news with analysis.

Weather: There is a lot of weather on profarmer.com... too much to detail it all. But, I will mention the interactive radar at the bottom of the home page. This is the coolest radar map! After you click on the map, hold the hand of your mouse over your hometown and roll the "roller" on your mouse up -- it will zoom right in on where ever you're pointing. And it gets tight... some of you might even be able to find a fence row of yours! (Just kidding... but it does get tight!) Roll the "roller" down, and it widens the view.

That's a lot of Member benefits! Check all this stuff out. If you are already a Pro Farmer Member, you'll be getting your password and ID from us very soon so you can maintain access to the site. If you're not a Member, our "Classic" (subscription to the weekly Pro Farmer newsletter) Membership starts at $189 per year for 52 weekly newsletters and full access to profarmer.com. (More information on all Pro Farmer services.)

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COMMENTS (13 Comments)

Anonymous
So was it zombie money that pushed corn to $8.00 a bushel. If it was why didnt 401's get pushed higher?
9:38 AM Jul 21st
 
Anonymous
Thanks for your explanation Im a far cry from being a market guru. Just a little disheartening knowing my 401 is being run by some zombies. Might explain why its lost about 35% the last couple years.
9:30 AM Jul 9th
 
 
 
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