Odds and ends
My comment last week concerning the CBOT and the cash index futures offered by the Minneapolis Grain Exchange generated a lot of responses.
One individual said that there have always been restrictions on deliveries on futures contracts. That is true. The big difference between today's markets and those of earlier times is that the proportion of the grain trade that goes through Chicago is not nearly as great as it was when the Board of Trade was started. There has always been and always will be basis risk. The factor that I tried to put across last week is that the cash index has a higher correlation to the cash price at most locations than the price on CBOT contracts. The prices in my column last week illustrate that the index does a fair job of reflecting actual cash prices.
In another posting, someone talked about the makeup and effectiveness of the regulatory agencies. I was on the Agricultural Advisory Committee to the CFTC from 1985 to 1991. I represented the American Soybean Association. Every farm and commodity organization had then and still has a representative on this committee. There is no longer an active farmer representing ASA. The committee is strictly advisory and has no power to do anything.
The CFTC always has at least one commissioner representing agriculture. Right now there are two, Mike Dunn and Bart Chilton. I know Mike Dunn personally through activities of the Omaha Chamber of Commerce. His background is in farm credit. Mike has a very good working knowledge of farming. I do not know Mr. Chilton. He represented the National Farmers Union in Washington. When I was on the committee there were ongoing studies on the convergence of cash and futures. It is one of the things they are charged to watch. I would like to know what the studies are showing now, 15 years after my tenure ended.
The board of directors of the CBOT had an active farmer from 1985 to 2002. He was Ralph Weems, a grain and cotton farmer from Mississippi. I do not know if he was replaced by a farmer or not. He did a good job of representing producers, but he was only one vote on a large board. Mr. Weems passed away after he left the CBOT.
Both the CFTC and CBOT have very good websites. It is interesting to see who regulates the markets that are so important to our businesses. I really enjoyed my time on the advisory committee. My eligibility was over in 1991, so unfortunately I am no longer in position to see what was going on inside those organizations.
This is the week of the Harvest Low on the long term seasonal soybean charts. These charts are only averages, not predictions of when an event will occur. With the strength in the soybean and corn markets in the last month, it is no wonder prices took a breather earlier this week. It was reassuring to see the soybean futures rebound from almost limit down on Tuesday. Unfortunately corn did not follow suit. We need to keep in mind that the dead cat bounce which follows the harvest low usually has more than one peak and the rally in futures is always accompanied my a rally in basis. There is no reason to think that this year will be different.