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PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

Extended trade observations

May 25, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Observations after first week of extended trading hours

May 25, 2012

The first ‘taste’ of expanded grain trade is a little bitter. We are not opposed to change. But when the change has many tentacles that reach deep into the industry, you’d think the change would be implemented in an orderly and
transparent way. That does not describe the expansion of trading hours in the grain markets. We’re sure the dust will settle on this issue (eventually), but after a week of expanded hours, the CME Group Friday morning announced changes to how the grain markets will be settled and it was announced that pit trade (traditional open-outcry trade) will open at 7:20 a.m. CT on USDA report days.

 

And that says nothing about the confusion created in the cash grain markets. Some of your selling locations are setting bids based on the 1:15 p.m. CT grain settlements; some are setting bids based on the last tick in electronic
trade at 2:00 p.m. CT. We’re far from comfortable with the direction grain trade is headed.

 

It feels like the ‘robots’ are taking over. More hours of grain trade have increased volume in the grain markets. Or has it? Last week’s grain trade featured the first mini weather scare of the year for corn and soybeans that had to be balanced against rumors that China cancelled some soybean buys. Volume and price volatility should increase when digesting those two issues.


But... we feel the impact of robots driven by trading algorithms was revealed in very choppy intra-day price action. Wide trading ranges have become common in grains, but visiting both ends of the range multiple times throughout the day is not common.

 

Perspective: It feels like the grain markets are losing the “human element,” which will only make risk-management more difficult going forward. We’ll get it figured out, but everybody is a student of the markets again.


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