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Here is a link for those brutes for punishment:
http://www.extension.agecon.vt.edu/dairyriskmgt.html
Risk management is promoted to get a handle on prices (farm milk) rising or falling. In a real market price moves because of information. How can this be, in a situation where there are so few players.
All of the papers in the above link promote the idea (as if there can be no other thought) of supply/demand. Fine but, where farm milk is priced, on the CME, one day a powerful player behaves as if farm milk prices are too high. Then for reason which are not obvious, the same player behaves as if prices are too low.
That is the cash market and those traders largely determine Class III futures. http://www.cftc.gov/dea/futures/deacmelf.htm So about half of all trades are held by 8 or fewer players.
Some market? This activity is closer to economic activity in the former Soviet Union than to any concept of a real market.
These "risk management" courses were nothing more than a way to create fear so that DFA could "persuade" (through academial experts) more farmers to sign up for forward contracting. That way, DFA could control the price....oh wait, weren't they fined 12 million for manipulating the CME? So don't they already control the price, but if the farmer signed forward contracting, DFA could LEGALLY control the price of milk.
ReplyDeleteThe presentation on futures on October 22 by David Anderson, slide 13, told the farmer to "probably do this through co-op so understand the contract".
So what do they want us to do? Give them MORE of our money so they can "manage" it? Do you really think if they are hedging, that they are going to risk losing? And are they saying the farmer is not intelligent enough to understand?
Is it public knowledge WHO these 8 or so "players" are and who holds them accountable?
Please name the 8 players. If they are the problem why aren't we blaming MMOs instead of DFA all the time?
ReplyDeleteThose numbers are not available. We do know that DFA settled with CFTC on Dec 16, 2008 for price manipulation.
ReplyDeleteSince that time CFTC has had someone at the CME observing DFA. So far this year I do not think DFA has been active on the CME.
Others, including other co-ops have been involved.
The fact is, the market is too thin to determine farm milk price. The fault lies with USDA.
Morning John,
ReplyDeletePoint is-how can there ever be a "market" with so few traders? No matter how much lipstick one puts on the CME she's always gonna be the Mother of All Pigs...even in a casino the suckers get to win once in a while: there's no chances being offered to a dairyman foolish enough to play Ed Gallagher's Game; up or down Ed wins every time, albeit I'm sure he cheers lustily for his farmers every time they're getting shafted... Happy Thanksgiving to all. Nate Wilson