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Farmer ties to floor

Agriculture.com Staff 09/11/2008 @ 8:43am

With a Holstein-looking cow print, the jacket Scott Shellady wears while trading in the corn options pit at the Chicago Board of Trade (CBOT) gives away his tie to farming in northwest Illinois.

The black-spotted jacket is the same one Shellady's father wore for over 20 years as a CBOT trader.

"My father wanted to remind the people down here that there is actually an end user for the commodities traded. He wanted them to know that corn is still a cash commodity that is used every day around the country and around the world," Shellady says.

After his father retired, Shellady decided to carry on the torch of reminding traders there is a connection between farming and the market.

With the increase of outside money (hedge funds) in agricultural commodities in recent years, the connection between farming and the futures market is blurred, floor traders say.

"There is an exponential increase in capital with an exponential decrease in knowledge of the product being traded," Shellady says. "Ultimately, that is not a healthy thing. We have people investing all over the world who don't even know what corn looks like."

This has made it difficult for traders like Shellady to read the market.

"When I drive from my family farm in Galena, Illinois, to Chicago and see a poor-looking crop, this makes me cautious about the potential of the crop. But I come to the floor and we're limit down with some perception of decent upcoming weather, and the people with the money want to get out of their positions," Shellady says.

Shellady's family farm is made up of 700 acres of corn and a cow-calf operation. The full-time floor trader says he still returns to the farm to help feed the cows and drive the tractors.

"The farmhand won't let me run the planter or the combine, though," Shellady laughs.

Shellady is cautious to think that even though he has knowledge of the product he trades, he is still very careful not to get run over and killed in the market.

"It's really a high-stakes game where the guy with the most money wins," Shellady says. "Anymore, we trade capital, not corn."

For example, it could be 102 degrees Fahrenheit. outside during corn pollination and the price goes down. As a result, deciding when to buy or sell, whether on the farm or on the floor, has become a lot about timing.

"I take my knowledge of farming and adapt my style of trading to come up with a working formula," Shellady says. "I don't sell everything all at once anymore. I don't even sell the family crop or trade positions in thirds anymore like most farmers probably do.

"Instead of hedging in thirds, I would break down that third into tenths. I'm averaging my third, which is hard to do on a rally and hard to buy on a price break. But you have to step back and look at what the average price was. You just can't afford to shoot your gun at one price."

With a Holstein-looking cow print, the jacket Scott Shellady wears while trading in the corn options pit at the Chicago Board of Trade (CBOT) gives away his tie to farming in northwest Illinois.

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