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Red says, Players are placing Big Bets on the Commodities'
Y 2011 is bringing up memories of Y 2008 action in he
commodities pits, as rising crop prices kindle fears of a food
crisis and bubbling Crude Oil prices.
In parts of the World, inflationary pressure is building, and
the commodity player is in the mix.
Prices for Corn, Soybean and Wheat in January returned to highs
that just 2 yrs ago sparked food riots in more than 30 countries
from Haiti to Bangladesh.
Brent Crude Oil, the North Sea benchmark, hit 99 bbl Friday,
its highest mark in 27 months.
In the USA this week, regulators unveiled sweeping rules to
keep big players exercising too much power over prices, on fears
that another food crisis could jeopardize the Global economic
US Senators warned of a speculative "Bubble" that threatens to
drive up gasoline and food prices higher.
However, many commodity prices are rising for good reasons, as
the physical demand is rising rapidly, for gasoline, Chinese car
sales rose 33% last year, or for Corn, the US ethanol industry
will consume 40% of the Nation's crop this year.
But players are riding the commodities Bull and placing Big
Bets. Money flows into commodities have been huge. Barclays
Capital estimates $60bn was injected into commodities in 2010.
Some observers believe speculative trading has sent prices to
excessively high levels, making a sharp recoil likely should the
fragile economic optimism fade.
Figures from the Commodity Futures Trading Commission, the US
regulator, reveal Strong Bullish Bet by money managers, and
including hedge funds.
Into year;s end they owned a record net "Long", position in
Crude Oil futures and options on the New York Merc. In September
the same players held record net "Longs" on Corn.
Hedge fund analyst's are focused on Global economic trends,
also, money managers, including Trend followers using computer
programs to track market momentum and "high-frequency" traders
move in and out of positions in microseconds, all accounting for
the market's action.
Electronic players were responsible for record high volumes
last year in Energy, Metals and Agricultural commodities at the
CME the largest US futures exchange.
To some observers of the action in the commodities is
described as a "bubble" and raise The Big Q: will there be an
orderly unwind or a disorderly unwind?
After combined 65 yrs of combined experience in commodities
Shayne and I find that hard evidence of Strong correlations
between players' positions and price movements is undefined in
As an example: in New York Cotton trading managed money's
Bullish position has fallen by 50% since mid-September, and the
prices hit their highest level the Exchange's history in
Also, money managers were Bearish soybean as recently as July,
just before a months long rally. They quickly built a record net
Long position by November.
The above examples are evidence of small marginal impacts at
most on the average level of prices.
Accused that it turned a "blind eye" to the activity of index
players, the CFTC in Y 2009 began publishing their overall
positions. The data did not help the critics.
It showed indexers' net Long position in US Crude Oil futures
fell 11% in the 1st 6 months of Y 2008, even as Crude Oil rose to
140 bbl, and their Cotton position was roughly unchanged in Y
2010, in spite of the rise to record prices, and even as Wheat
has risen since July, the index net Long position has
The head of Crude Oil research at JPMorgan (
), noted recently that when Crude Oil demand has risen by a
massive 2.5M BPD in Y 2010, and supply is still being held off
the market, it is hard to create a case that speculators are
pushing Crude Oil prices higher.
The CFTC would like to limit Big Player holdings, but some
members doubt the proposals would affect the prices. Stay
tuned...Paul A. Ebeling, Jnr. www.livetradingnews.com