Thursday, Jul 29, 2010
Great News - Wheat Prices Soar!
Bloomberg: Wheat Heads for Biggest Monthly Climb Since 1973 on Concern About Drought
"Wheat rose in Chicago, heading for the biggest monthly gain since 1973, on concern that a crop- damaging drought in Russia and parts of Europe will curb exports, lifting demand for U.S. supplies."
I am glad I INVESTED in Wheat instead of property!
"And then my heart with pleasure fills,
And dances with the daffodils."
Posted by estrader @ 09:20 PM (2525 views) Add Comment
73 Comments
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1. sureseam said...
Wheat futures are like futures in general; great for hedging but otherwise way over dangerous.
In farming circles there are tales of big farmers (land owners with thousands of acres) getting the wrong side of futures contracts and being bankrupted.
Sort of like a lottery ticket that just might blow both your arms and legs off. Caveat emptor.
2. estrader said...
How long have you been trading futures sureseam?
3. debtfree said...
What is this . . The Farmers Crop Crash website all of a sudden ?
"Oh look at me, I'm long this and how long have you been doing it"
4. estrader said...
Debtfree, there is a shortage of wheat and there is plenty of pent up demand. Mervyn King can't print wheat like he can money so prices will probably rise further, which is great news!
5. estrader said...
http://www.ukagriculture.com/food/fast_facts.cfml?Food_name=Wheat
This is great news for me and the U.K...although for those struggling to pay their mortgages, the prospect of higher food prices might not be such great news.
6. landofconfusion said...
the prospect of higher food prices might not be such great news.
Well, at least it won't show up in the inflation figures.
7. bystander said...
........"the prospect of higher food prices might not be such great news."
..........or, infact for anyone, even sharks like you, profiting off other's misery, estrader. Can't believe what smug gits, investors who 'get their call right' are and what spoilt brats they are, when they 'get their call wrong'. This isn't jealousy, although I am sure you will convince yourself that it is, but it is annoyance that we appear, as humans, so pre disposed to glee at gain, even at others expense (have you even considered the impact of higher food prices on those on low income in the UK and those on very, very low income in the rest of the world - no ofcourse you haven't you gloating prat). The city of London and Wall street etc. is full of idiots like you who put their love of money above everything else (not everyone for sure, but a fair few). I had hoped you were being ironic with your post, but reading your comments it is all too clear that you are indeed another square mile moron.
8. hpwatcher said...
I was wondering why my breakfast cereal had gone up 5p this week.
But aren't we supposed to be living in times of deflation? Wheat should be getting cheaper!
9. Amos said...
Speculating on basic necessities is totally morally wrong.
You push up the price of food and the people on the margin die, millions of them.
10. estrader said...
bystander, all I did was buy wheat when the prices were low. The drought did the rest. I didn't...couldn't buy enough wheat to make prices soar. Besides, you don't need to borrow huge amounts of money over 25 years to own some wheat. You could go out and invest in wheat right now and make some money...that's if you want to be a bloodthirtsy "shark" like me....Besides, I don't ever recall you saying how good it was for everybody when wheat was cheap...you were probably too obsessed with house prices weren't you? You only know wheat is going up in price because I mentioned it...am I right?
11. bystander said...
estrader did you bother to read my post?? I was commenting on your attitude to higher food prices and who these might affect beyond you trying to justify your self congratulating and ramping post, which has absolutely no place on a forum regarding house prices and their rise or fall. To be generous you may just be suggesting that those who visit this site should all go and buy wheat futures to bolster their insultingly low returns on savings, but in all honesty all I can see from your post and comments is that you are yet another city boy who made a lucky bet and has now come to gloat about how clever you are. You'll probably come back and tell us how much houses have gone down in price with regards to the substantial gains made by you in wheat futures etc...............and to be honest the price of wheat doesn't keep me awake at night and I am happier for it, but thanks for enlightening me to the impending disaster, perhaps you could find a spot and a box on Hyde Park Corner and let the rest of the proletariate know they are doomed too.
12. estrader said...
bystander, I did bother to read your post, so let me ask you, what is my "attitude" about higher food prices? I said it won't be good for those struggling with debt, which is a fact. Put yourself in the position of a farmer. A farmer who toils out in the field everyday, breaking his back harvesting, planting and ploughing to produce crops to feed bankers driving around in expensive fancy cars...bankers getting bonuses for doing what exactly? Now, as a farmer, working hard to maintain your crops and pay your bills and feed your family, would higher wheat prices be something to celebrate? Or would you want prices to be capped so that those who took out expensive loans can keep paying them to bankers so that they can drive around in fancy expensive cars?
Besides, I am not a city boy, I am a lowly private investor trying to get through all this, just like you.
RC:business classroom
13. mark wadsworth said...
Estrader, well done and everything, but you didn't really "invest" in wheat, i.e. buy seeds and a tractor and pay some labourers to produce more wheat, you simply bet on prices rising.
On a macro level, all this speculating is possibly a slightly positive sum game for humanity as a whole but only very marginally (sending timely price signals to producers and all that guff).
14. estrader said...
Mark, 'investing' is more or less a euphemism :) People can't demand that supply and demand is only allowed to work when it suits them.
15. cat and canary said...
you might argue, at a general level, that speculation of all kinds should be banned from items which are considered necessary for basic human survival, including food, shelter and water.
This website wouldn't exist if it weren't for the speculation and vested ramping of the price of a shelter
(climbs down off soap box)
16. estrader said...
cat and canary, who would set the price of wheat in this perfect world or yours? Would you be a farmer if the government set the price of wheat?
17. estrader said...
Is anybody here a farmer?
18. nickb said...
To bet on wheat prices going up is betting on other people's misery and perhaps famine, I can't see a way round it. Even if it doesn't add to the price pressure, and perhaps it does, I'm afraid I too find it distasteful. (If I were a farmer I might be able to justify buying an option on a selling price, but that's rather different.) Slightly less obvious then betting on an earthquake or Tsunami, but different in degree not kind. There is a global food crisis, though over here we're not exposed to it because we are rich enough to import it, crowding others out through the price mechanism.
Nick
19. bystander said...
estrader you and I are absolutely in agreement with regards to farming and the stress and toil that is the day to day for such a vocation.
I will never understand the mentality to celebrate ones own gains at the expense of the majority, but that is perhaps why I am not an investor in commodities, especially food and water etc. which I believe should be out of reach of the investing community. The last scene in trading places when soy bean futures were played with by those with more money than ethics. I know it was a film, but the same happens day in day out on the trading floors of the world, and those actions have much greater and much further reaching reactions, than just putting a fatter bonus in the pocket of the Hedge Fund manager or investment bankers pocket.
RC: not daydream
20. This comment has been removed as it was found to be in breach of our Blog Policies.
21. refusetobuy said...
Humans are risk averse.
Buying futures allows people to hedge price risk.
Allowing people to take greater risks elsewhere in their business.
In this case, the traders (wholesale, local market, stock exchange) provide a fair(?) liquid (mostly) market for the farmers to guarantee prices*. The farmers can now afford to risk some money on new equipment that may (or may not) improve their crop.
Not sure about the link to houses tho.
*Unfortunately, volumes are not guaranteed so not all risk is removed for the farmer.
22. estrader said...
Betting on wheat prices is understanding how supply and demand works, that is all. Supply and demand is used a lot here when discussing where house prices are headed. Betting on an earthquakes doesn't cause earthquakes.
23. nickb said...
No, that is not all. When the prices go up many people can't afford to buy enough wheat and so may not get enough food. If speculators and food producers end up competing for the same contracts it will also add to the price pressures.
Nick
24. estrader said...
techie, people assumed I "invested" using futures whereas I actually did it via a wheat ETF :)
25. cat and canary said...
"Would you be a farmer if the government set the price of wheat?" ...more so. Would it not benefit farmers, ironing out the price fluctuations which can commonly bankrupt farmers? Would it not take power from the supermarkets who are widely know to negotiate price to the point of exploiting farmers as slaves in the 3rd world?
This isn't utopian, this is common sense, if we dare to call ourselves "human beings" who are supposed to be capable of recognising the basic needs of our fellow kind.
26. hpwatcher said...
Guess it's going to be mud pies for me then - can't afford the bread!
27. Estrader said...
nickb, the only thing that changed was the drought. Speculators shorting wheat caused prices to go DOWN as well, OK? Let me put it another way, speculators can make prices CHEAPER too.
28. estrader said...
nickb, the only thing that changed was the drought. Speculators shorting wheat contracts can cause prices to go DOWN, OK? Let me put it another way, speculators can make prices CHEAPER.
29. nickb said...
EStrader
Could you explain for the benefit of ignorant non-traders like myself exactly what a wheat ETF is and how it operates please? I'd also like to know why you think it doesn't add to price pressures. If I go to Ladbrookes and bet on wheat prices going up, I can imagine this won't have an effect, but I suspect it doesn't work like that.
Nick
30. estrader said...
Anyway, for those who think what I am doing is distasteful and want a benevolent society, go out and buy a farm and grow wheat...or is that too much like hard work?
31. nickb said...
ES
When they cause prices to go DOWN, then FARMERS lose out, right? The speculation benefits from volatility, at someone else's expense.
Nick
32. techieman said...
"techie, people assumed I "invested" using futures whereas I actually did it via a wheat ETF :)"
oh arhhh oh arhhhhh [Wurzels west country accent]
We can trot out the arguments that specs add liquidity to the market and generally take the other side of the comercials (generally unsuccesfully i might add) against the other argument that the evil specs exaggerate the moements - (which of course would mean upside and downside movements) but i will just stick with the light hearted approach. oh arhhhh!
Anyway GDPs out today - so thats going to be "interesting"! and potentially manipulated....[who said that?!?!?]
33. nickb said...
Waiting for the explantion of ETF etc.
Interesting that you assume that others are not hard working. When speculation does nothing productive at all.
Nick
34. hash browne said...
Whilst I agree with the sentiment of many of these posts, I sense there's a certain level of hypocrisy here.
I suspect every one of us contributes to the demand for child labour in third world countries, simply by buying an item of clothing in this country.
Unfortunately thats the world we live in.
35. estrader said...
nickb, I didn't say that an ETF doesn't affect wheat prices I said I didn't invest directly with futures. If you bet via a bookmaker like Ladbrokes, it doesn't affect prices because they don't hedge or back their bets with futures contracts...(as far as I know anyway)
36. refusetobuy said...
http://www.etfsecurities.com/en/updates/document_pdfs/ETFS_Grains_Fact_Sheet.pdf
"The ETC is backed by matching Commodity Contracts purchased from Commodity Contract Counterparties whose payment obligations are backed by collateral covering 100% of the daily mark to market value of Commodity Contracts outstanding. Such collateral is held by the collateral manager in a separate account."
estrader, you may not know it, but you are buying futures.
37. nickb said...
Hash,
I'm afraid I can't entirely agree. The hypocrisy line is often used to justify greed. We don;t have a choice not to buy clothing, we don't have to speculate in commodities.
N
38. No_username said...
So...
BTL landlords, speculating on rising cost of shelter = scum of the earth
estrader, speculating on rising cost of food = ?
39. estrader said...
nickb, produce too much wheat, prices go down, don't produce enough wheat, prices go up. Supply and demand.
40. estrader said...
refusetobuy,
I said that I didn't invest DIRECTLY in futures.
Go to go now, this has been interesting. I hope I have not offended anyone.
41. nickb said...
ES
Supply and demand swings amplified by speculators according to your posts in this thread.
Nick
42. techieman said...
"if you bet via a bookmaker like Ladbrokes, it doesn't affect prices because they don't hedge or back their bets with futures contracts...(as far as I know anyway)" - eh?
If you bet with Ladbrokes, Ladbrokes go on course and arb the position. For example if they have huge exposure to the favourite in the 2.20 they go on course and back it to lower the price. Thats why they hate betfair - but isnt this a tangent?
And anyway the point of this posting should be WHY wheat has risen - as HPW says is it inflation or is it because of other things eg poor havest or some bug that eats the wheat, swarm of locusts in Kansas etc etc. You shouldnt be "bugging" EST on what he has done.
Shouldnt EST be allowed to make hay while the sun shines?
43. nickb said...
Techie,
Leaving ad hominem stuff out ot it... The issues raised were
i) is it distasteful to bet on others famine and misery. I find it so, and surely this is understandable even if others don't.
ii) does speculative activity amplify price movements. According to ES it does. I think it does too, since derivatives contracts are ultimately based on claims to the actual resources.
The point of ladbrookes was to say that there's a difference between pure bets and speculators' trades. If I bet my dad that wheat prices are going to go up, this has no effect on the price, assuming he's not going to play the futures markets.
Nick
44. tudorian said...
bystander
I have to agree with your sentiment @7
I don't want to make any personal comments directed to other posters
Is there a difference between profiting from the misery of first time buyers priced out of the market / enslaved through a life time of debt and profit derived from the shortage of wheat needed to feed many of the world's poorest .. or indeed any other 'commodity' essential to life ?
recaptcha :- windiness up
45. techieman said...
it seems odd to me that this thread has got 40 postings whereas one on house prices per moneyweek posted by Damien has got diddly squat... I suppose i am culpable as the next man (or woman) but this is a HPC site after all - as debt free says @ 3!!
I think the comparison with HPs (or even the effect this would have on them - unlike say looking at credit conditions and money supply etc) is exceedingly weak, so really shouldnt we say congrats and well done EST and move on. After all an ETF based on Kansas wheat i am assuming, rather than weat used by Mcdonalds here for their buns!!! "I'm lovin it"
46. nickb said...
Tudorian
Agree up to a point. Unfortunately we don't really have a choice not to gamble on the housing market in this country, though some people may relish it.
Nick
47. techieman said...
Nick @ 40 - mine at 30 is really all i want to say. [so now i am going to say sometyhing else - typical!]
I do trade softs myself, but not very often anymore. Not because of any moral issues, just because i find it too difficult to make anything trading em!
IF you want to, you can trade the CRB index as a hedge against (hyper)inflation rather than buying gold - seems much more sensible to me!
But we arent talkig about inflation here we are just talking about tight supply conditions in one commodity.
48. nickb said...
Techie
Why should we congratulate ES on these pages? For activity unrelated to House Prices..?
N
49. rumble said...
"We don't have a choice not to buy clothing" -- a slave to custom, go on, strip off, it's for the children.
50. mark said...
not sure if this will effect inflation as China is a more important wheat grower.
51. techieman said...
nick - ok dont congratulate him if your morals dont allow that - to thine ownself be true and all that. [i actually meant to not comment one way or the other - i think you are taking my comments too literally].
Lets just move to something more pertinent to HPs? Was what i was trying to get at. If EST has made one or two bars out of others "misery" - which he actually hasnt, but i dont really have time to go into the ins and outs of why he hasnt, then i say good luck to him. But then again i suppose i would wouldnt i?
52. nickb said...
rumble
would love to, alas we have laws against it
N
53. techieman said...
mark arent we self sufficient in wheat? tight supply in one commodity isnt inflation anyway.
54. cat and canary said...
Cheers estrader for the debate, i dont think its important whether its "distasteful" or not. Agree with Techie in that you are doing what any one of us might do, in some way or other. I also agree partly with Hash Browne in that there is a certainly level of hypocrisy in all of us, and the world is what it is. The common point (rightly or wrongly) is that the system is wrong with respect to price control of food etc, and it needs someone to stand up and sort it out.
55. Pwez said...
I'm a farmer, growing wheat. I bought a small farm in Poland last year. Only 6 acres, but its a start. Before anyone complains about the rise ion the cost of food remember that it is inevitable. Food prices have fallen by 75% since the early 1960's and allowed a doubling of the world population. When did you last hear of 100's of thousands dying from stavation in a drought? the 1970's.
So there has been a reveloution in food production that hasn't benifited farmers - they are poor - nobody wants to live in the coutry side scraping a living as a farmer. This is going to change becuase there is no land or water or oil to produce more food.
56. nickb said...
Techie,
I would like you to go into the ins and outs of it, leaving aside the ad hominem and talking about commodities speculation in general, since this is what the 40+ comments are all about. I can't see how not, especially if speculation amplifies price movements.
Nick
57. hpwatcher said...
Oh well, I guess it's good luck to estrader; you took the risk and have now made a bit of money.
58. techieman said...
nick then i am not being rude but i suggest if it interests you that much you do some research as to what effect specs have on prices. My clue is at 30. Look at commitment of traders too - that might help.
As i said at 30 the case is arguable. I am prejudiced one way but its a very old argument, and you need to reach your own conclusion. Which you seem to have done anyway!
59. nickb said...
Techie,
Your 30 is mostly Wurzel ;-) I didn't claim to know all the ins and outs of it, whereas I think you hinted that you do know quite a bit about it. Hence it's natural to ask you for enlightenment. What's interesting was that ES very clearly was of the opinion that speculator amplify price swings.
N
60. sureseam said...
Estrader:
In answer to (2) ... I have avoided futures as yet - having respect for investments that can lose more than I put in.
In answer to "Betting on wheat prices is understanding how supply and demand works, that is all.":
Here I think you are wrong in that supply/ demand are just two influences, try a shower of rain for another or even stampeding markets that can stay irrational longer than either of us can stay solvent.
In answer to "Is anybody here a farmer?": Not now but I grew up in that community and narrowly escaped.
The pendulum went to an extreme where our society spent a smaller proportion of their income on food than ANY known society in history. As that pendulum swings back, even a little, there will be howls of outrage. As interest rates swing back to normal ranges there will be howls of outrage. As house prices swing back to normal ranges there will be howls of outrage. All change generates distaste even a revertion from extreme, yet change, alongside death and taxes, is inevitable.
61. mark said...
Techieman
I am not sure to be honest
but what I do know is wheat is in a huge range of products, not just bread. So it could have an effect on prices if wheat shot up.
62. mark said...
while you are all on does anyone have an opinion on Leed Petroleum LDP (london) I bought a few grands worth the other day, they seem to be going up, however there is no recent news anywhere, so wondering if anyone had any ideas on the up in price, so i can figure out if it is worth investing several more 1000's
63. techieman said...
ok well there are 2 sides to this coin. [as i said]. You can take a look at these two: [ft alphaville normally do stuff too that explains why specs are a good thing for the market]
Take a look at: http://www.wdm.org.uk/food-speculation
and
http://webcache.googleusercontent.com/search?q=cache:7Y-XJzfer20J:www.icea.co.uk/archive/Christopher%2520Gilbert%2520Excess%2520Speculation.ppt+does+speculation+amplify+price+movements&cd=5&hl=en&ct=clnk
If they do amplify movements - they do it both ways. In addition it doesnt last for long.
Thats why investors are in the aggregate most bullish at tops and most bearish at bottoms. I am not here to defend the actions taken by EST or to vilify him for them.
I totally accept that you may have a different position and on the surface the position that specs are evil and cause problems is understandable. I just dont really agree. Explaining why is, admittedly, for me at any rate - difficult!
64. icarus said...
hpwatcher @8 - the price of breakfast "cereal" varies with the price of oil. You could drive 15 miles with the 7,000 kilocalories that go into each box of cornflakes. Marketing is the other big cost.
65. nickb said...
Techie
Thanks, I will add those to the reading pile.
On how long lasting, I guess it doesn't take a "long time" for high food prices to cause serious problems though.
Nick
66. Pope6 said...
All the original poster really did was bet on the weather in certain parts of the world
67. Fraggle said...
I don't really understand how you have 'shares' in a perishable commodity.
When it comes to speculation in general, it is a necessary market function and there's nothing wrong with it in principle (even for essentials - if wheat supply is low, then people need to know that there's not enough to go round - that's what the price signal does, what do people who now can't afford it do? Substitute. Wheat is not the only grain) The problem comes when vast sums of money can be borrowed into existence in order to do the speculating. As the act of speculating affects the price, with sufficient liquidity you can create the very market movement you're betting on. In any other field that would be called match-fixing.
68. hpwatcher said...
hpwatcher @8 - the price of breakfast "cereal" varies with the price of oil. You could drive 15 miles with the 7,000 kilocalories that go into each box of cornflakes. Marketing is the other big cost.
Tescos have put all their prices up. All of em' I tell ye.
69. mark said...
A lot of supermarkets are increasing prices ready for the VAT increase, next year they will then say our prices have not gone up with vat we have swallowed the cost.. yeh yeh we are no longer stupid
recaptcha inside blakeley (one can only dream)
70. Crunchy said...
And again...............HYPERINFLATION FOOD SHORTAGES, You don't listen do you.
No suprise to me. It's just a question of time now.
71. Chriswov said...
As a faarmer, before drought expected yield off of my acres approx 150 tonnes @£85 /tonne ,after drought about 100 tonnes @ £140/tonne-I could be up £1250 . By the way I was hardly breaking even under the before drought scenario.
72. Pwez said...
"mark said...
A lot of supermarkets are increasing prices ready for the VAT increase, next year they will then say our prices have not gone up with vat we have swallowed the cost.. yeh yeh we are no longer stupid"
But stupid enough to think there is VAT on food apaprently.
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