1 / 23

ECON 337: Agricultural Marketing

ECON 337: Agricultural Marketing. Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356. Chad Hart Associate Professor chart@iastate.edu 515-294-9911. Market Participants. Speculators have no use for the physical commodity

nitara
Download Presentation

ECON 337: Agricultural Marketing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. ECON 337: Agricultural Marketing Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 Chad Hart Associate Professor chart@iastate.edu 515-294-9911

  2. Market Participants • Speculators have no use for the physical commodity • They buy or sell in an attempt to profit from price movements • Add liquidity to the market • May be part of the general public, professional traders or investment managers • Short-term – “day traders” • Long-term – buy or sell and hold

  3. Corn Futures Trade Source: CFTC

  4. Soybean Futures Trade Source: CFTC

  5. Live Cattle Futures Trade Source: CFTC

  6. Lean Hogs Futures Trade Source: CFTC

  7. Bullish Speculator No futures position “Long” futures position No futures position Time Now Later Maturity Buy futures contract Sell contract back “Open” a “long” futures position “Close” the “long” position “Make” a promise “Offset” the promise

  8. Going Long Bought Dec. 2014 Corn @ $4.47

  9. Bearish Speculator No futures position “Short” futures position No futures position Time Now Later Maturity Sell futures contract Buy contract back “Open” a “short” futures position “Close” the “short” position “Make” a promise “Offset” the promise

  10. Going Short Sold Nov. 2014 Soybeans @ $11.09

  11. Speculators • Speculators: • Buy or sell in an attempt to profit from favorable price movements • Face the risk of losses from unfavorable price movements • Do not produce or consume the commodity • Benefit the market because they add liquidity • Often trade the news of the day

  12. Why Speculators Like Futures Markets • Relatively little capital required • Initial margin, margin calls • No need to handle commodity (e.g., transportation, storage, cleaning) • Easy to speculate on either side of the market (Up or Down)

  13. How Would You Speculate? • Flooding is projected for Iowa • Reports of a bumper crop in Brazilian soybeans • Rumors of foot and mouth disease in the U.S. • Inflation is projected to rise

  14. Day Traders • Looking for quick within-day price moves • Might be “long” today and “short” tomorrow • Limit the risk they face by limiting their amount of time in the market

  15. Going Short Sold Nov. 2014 Soybeans @ $11.09

  16. Short Hedge Hedging Nov. 2014 Soybeans @ $11.09

  17. Going Long Bought Dec. 2014 Corn @ $4.47

  18. Long Hedge Hedging Dec. 2014 Corn @ $4.47

  19. Cash Contracts • When we talk about a cash contract, it is an agreement between a seller and a buyer covering a quantity and quality of a product to be delivered at a specified location and time for a specific price • If the time is now, we call it a “cash” contract • If the time is sometime in the future, then it’s a “forward cash” contract

  20. Cash Bids Key Coop http://www.keycoop.com/cash-bids Heartland Coop https://myaccount.heartlandcoop.com/bids.htm Cargill http://www.cargillag.com/Marketing/LocalBids/local-bids-center West Central Coop http://www.west-central.com/grain/west-central-bids/default.aspx

  21. The Highest Cash Price Is … … Not always the highest return Need to think about transportation and storage costs Compare the cash prices we’ve seen today: • If storage is costing me 3 cents/bushel/month, do the May bids look better than the current cash price? • If transportation is costing me 0.5 cents/bushel/mile, which is the better price? Boone (16 miles) Gilbert (8 miles) Nevada (10 miles) Alleman (16 miles) Eddyville (100 miles)

  22. Cash vs. Futures Hedge • Cash Sales • Locks in full price and delivery terms • No margin requirements • Futures Hedge • Locks in futures price, but leaves basis open • Could see price improvement/loss • Can be easily offset if problems arise

  23. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2014/ Have a great Super Bowl weekend!

More Related