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The Role of the Funds and Speculators in the Futures Markets
There has been quite an uproar the past few years about the seemingly “mystical and all-knowing” funds and speculators in the commodity marketplace. They’re the scapegoat when prices rally too fast and you feel you sold your crop too soon. They’re the enemy to point to when prices crash unexpectedly and, in hindsight, you knew you should have sold more of your crop the week prior.
Throughout the past decade, the amount of market participants overall is now closely monitored and regulated. Speculators and funds are people willing to risk their money in search of profits, and actually are important to healthy commodity markets. Speculators and funds in commodity markets are oftentimes not physically connected to growing or producing an actual traded commodity but have interest in market participation based on market conditions. The more money speculators are willing to put to work in the market, the more liquid it is and the easier it is to buy and sell without causing big ripples in prices.
The funds and speculators do keep an eye on the actual fundamental news in the marketplace. If the market sentiment and fundamentals lean bearish, oftentimes the funds are sellers. They continue to stay short, or sellers, until the fundamentals shift and suggest otherwise. I write about them today because the funds are stirring. There is money coming out of the stock market and easing its way back into commodities. The market sentiment from the past few years of bearish supplies and cheap prices is easing. The funds, as opportunities, like to jump into the market as buyers when prices are low.
There is enough shift in market sentiment right now, and the mass negative tone of oversupply is easing. The world is aware of how strong global demand has grown over the past few years thanks to low prices and a better global economy. Add to the fact that there are enough small global production issues popping up, and suddenly you now have a market coming to life. The perception is that global corn carryout is starting to edge lower. The same may be said about global ending stocks of soybeans, if the production loss in Argentina ends up being as significant as currently anticipated.
It is important to keep track of how many positions the funds or speculators are long or short in the market because you can compare to their historical buying and selling patterns. This helps actually ascertain if the market may be peaking in terms of prices, or near the bottom. Keeping track of their positions is thankfully easy since the government puts out a weekly report pinpointing those positions.
As 2018 progresses, it’s starting to have the ingredients of an exciting year for price activity. Keep an eye on the markets as we move forward. Don’t forget to watch the weather and supply and demand, but also keep tabs on the funds and speculators. Every little bit counts if the year truly hits some exciting prices. There’s always something to consider when it comes to the markets. Monitoring funds and speculations are also keys to scenario planning success.
If you have questions, you can reach Naomi at email@example.com .
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2018 Stewart-Peterson Inc. All rights reserved.