Do Farmers Exhibit Disposition Effect?: Evidence from Grain Marketing

disposition effect, grain marketing, Agribusiness, Institutional and Behavioral Economics, Marketing,

Are Canadian Farmers Overconfident?

wheat, marketing, overconfidence, Agribusiness, Institutional and Behavioral Economics, Marketing,

The Importance of Reference Prices in Decision Making: An Application to Commodity Marketing

When we are selling something, we evaluate market prices by comparing them to some reference price that we have in mind. This comparison gives us an idea of whether a certain price is “good” or “bad”. For example, if I am a corn producer and had a chance to sell corn for $4.20/bu a few months ago and now I can sell it only for$3.50/bu, it might feel like the current price is “bad” because I am comparing it with a higher price that would have allowed me to make more money. On the other hand, if my break-even price is $3.40/bu, then it might feel like the current price is “good” because I can still make a profit by selling above my break-even level

The Importance of Reference Prices in Decision Making: An Application to Commodity Marketing

When we are selling something, we evaluate market prices by comparing them to some reference price that we have in mind. This comparison gives us an idea of whether a certain price is “good” or “bad”. For example, if I am a corn producer and had a chance to sell corn for $4.20/bu a few months ago and now I can sell it only for$3.50/bu, it might feel like the current price is “bad” because I am comparing it with a higher price that would have allowed me to make more money. On the other hand, if my break-even price is $3.40/bu, then it might feel like the current price is “good” because I can still make a profit by selling above my break-even level

The Only Thing That Is Constant Is Change: A Brief Overview on How Technology Has Changed Futures Markets in Recent Years Part I

During this month of October, we have read in the news several articles about trading in futures markets related to recent practices that are becoming increasingly prevalent. A US presidential candidate suggested the creation of a tax on high-frequency trading (HFT), referring to it as unfair and abusive. The focus appeared to be on the large magnitude of order cancellations in some HFT strategies. We also read in the news that the Commodity Futures Trading Commission (CFTC), the US derivatives regulator, filed a complaint against a Chicago-based proprietary trading firm that has allegedly been “spoofing” futures markets. Then the head of the CFTC indicated that the agency plans to address turbulence in Treasury futures markets, supposedly caused by automated trading. And there is the trial of an investor accused of “spoofing” commodity futures markets, who the Chicago Tribune reported to be the first criminal defendant to be “tried under the anti-spoofing legislation included in the 2010 Dodd-Frank Act”

How Much Money Can We Lose in Grain Markets?

Price risk in the soybean and corn markets was discussed in this newsletter last December (Cornhusker Economics, 12/04/2013 and 12/11/2013). Now we’ll follow up with a discussion about another way to measure risk in commodity markets. This measure essentially tries to answer the question “How much money can I lose over a given period of time?” as compared to the measures on price variability that we discussed last month

They Shrank the Futures Contracts! Mini Futures Contracts: What They Are and How to Use Them

Mini futures contracts (or e-mini, since they are traded electronically) were first developed in the late 1990s based on futures contracts that already existed. The main characteristic of mini contracts is that they represent a fraction of standard-size contracts. For example, the first mini contract was launched in 1997 and based on the S&P500 futures contract. The size of the standard futures contract is 250 times the value of the S&P500 index, while the size of the mini futures contract is 50 times the value of the S&P500 index. If the index is at 4,200 points, the total value of the standard contract is $1,050,000 and the total value of the mini contract is$210,000, i.e., the mini contract, in this case, corresponds to 1/5 of the size of the standard contract

TAS Orders, Innovations and Challenges in Futures Markets

Futures contracts and futures exchanges were developed a long time ago in the process of evolution of commodity trading. They were created with the purpose of facilitating the buying and selling of commodities. Despite challenges along the way, they helped make commodity trading faster, easier, and more efficient for many buyers and sellers. Still today, futures exchanges are constantly looking for new ways to adjust to new developments in commodity markets and further facilitate trading. After all, as we have previously discussed in this space, futures exchanges provide a service to buyers and sellers, i.e., the marketplace to trade futures and options contracts. More trading in this marketplace means more profits for futures exchanges

Do We Need More Futures Contracts in Commodity Markets?

In the last couple of months, there has been news about a new futures contract for soybeans. The Financial Times and Reuters, among others, reported that the CME Group, the world’s largest futures exchange, is considering launching a futures contract based on Brazilian soybeans. The discussion seems to have started after trade issues between the United States and China resulted in a 25 percentage-point tariff on U.S. soybeans exported to China. As Chinese buyers try to avoid the tariff by purchasing grain from other suppliers, notably Brazil, a new price dynamics between U.S. and Brazilian soybeans could be emerging. This raises the question of whether there would still be enough price correlation between the two countries for Brazilian producers and merchandisers to use the Chicago futures contract to hedge their soybean transactions. If the soybean price in Brazil is really becoming less correlated with the soybean price in the U.S., the local basis in Brazil will be less predictable and hence the hedging with Chicago futures contracts will become relatively less effective

Challenges of Making Financial Decisions and Avoiding Fraudulent Schemes

Last month there was an article in the local newspaper about a man accused of defrauding commodity investors for several years in Nebraska. This person is a commodity pool operator (CPO), who is an individual or organization that operates a commodity pool and solicits funds for that pool. A commodity pool is an enterprise in which funds contributed by a number of clients are combined for the purpose of trading futures contracts, options contracts, among other types of financial products. Generally speaking, a CPO manages an investment fund focused on commodity products