Wheat Futures

See Today’s Video: www.lind-waldock.com Lind-Waldock Strategist Frank J. Cholly discusses the grain futures markets, specifically, corn, wheat and soybeans.

See today’s video: www.lind-waldock.com Lind-Waldock Strategist Jim Barrett discusses the grain markets. Topics covered: Corn ethanol subsidy; Wheat endures some selling pressure; Grain Market update.

Let’s see:

Investing in the stock market means that you are buying an ownership interest in a corporation which provides valuable goods and services. If you invest broadly enough in stock markets, you are betting that global growth will happen during the holding period which accrues to the owners of global corporations.

Trading in futures means that you think that pork bellies, for example, are going to go either up or down faster than they would go in the other direction which would cause you to be closed out.

Trading in options means either you are an amateur looking for increased leverage on a directional bet in just about any market anywhere or you have some opinion about volatility which is different from the price of volatility expressed in the option.

Stocks have ongoing ownership, and futures and options have a set life expectancy/additional leverage with an expiration date after which they become worthless.

For help; open the third & fourth link on: http://www.investing-money-tip.info

See Today’s Video: www.lind-waldock.com Lind-Waldock Strategist Frank J. Cholly discusses the grain futures markets, specifically the corn, soybeans and wheat markets.

See today’s video: www.lind-waldock.com Lind-Waldock Strategist Jim Barrett discusses the grain futures markets.

Q:

What is the difference between a futures contract and a swap?

In both cases, whether you’re betting on the price of a commodity or on future interest rates, or opting for a stable price or a continuous interest rate to mitigate risk, it really seems like swaps & futures are functionally the same. What are the differences and why are they regulated so differently? Apparently, swaps are highly deregulated. Thanks a lot.

A:

Tons of differences:
a) Futures contracts are traded on exchanges so there is no counterparty risk (unless you believe the clearinghouse could fail). Swaps have a counterparty so there is counterparty risk.
b) Swaps are individualized contracts and you can do a swap on anything. Futures contracts can only be traded by Americans directly if they are approved by the CFTC (all domestic ones, most big foreign ones).
c) Futures contracts are marked to market daily with margin requirements that can change whenever the exchange or CFTC decides it ought to change. Miss a margin call and you are closed out. Swaps are rarely marked to market (although you can write whatever you want in the contract).
d) Swaps are often longer term than futures contracts. For example, interest rates swaps can easily last 10 years. There is usually not much liquidity in futures contracts beyond the front couple of contracts. When there is liquidity in distant contracts (as with Eurodollars), it’s because they are used as hedges to long term swaps (as with Eurodollars and interest rate swaps).
e) Interest rate and currency swaps (which means most swaps) have a series of payments. Each of these payments essentially corresponds to one futures contract. That means that swaps are “packages” of futures contracts.
f) Futures contracts are highly regulated (at least they appear to be) but swaps are unregulated.
g) Joe Bag O’Donuts can trade futures contracts by opening an online account. When I have traded interest rate swaps, there needed to be $50M in an account as the swaps are supposed to be AA credits. (The $50M didn’t belong to me, alas)
h) Taxation may be different (but speak to your tax advisor).
i) There is settlement risk with swaps. In FX swaps it’s called Herstatt risk. In a swap currencies are exchanged at the beginning of the swap. Many banks delivered currency to Herstatt which was closed in the middle of the day by German regulators prior to Herstatt delivering currency. The delivering banks were just screwed. As FX futures are not deliverable, there is no settlement risk.
j) Swaps on commodities would not usually be deliverable but futures contracts almost always (maybe always) are deliverable. Commodity swaps are largely oil swaps.

The reason they are regulated so much differently is essentially g). There is some limit to how much the gov’t wants to regulate AA credits, although after bailing them out for 100?s of billions of dollars a reasonable person might think this is ridiculous.

Swaps are used all the time to get around gov’t regulation. For example, if the futures exchange says that you can only hold 6000 corn futures contracts but you want exposure to 10,000 contracts, you can call up someone friendly and work out a swap on the other 4000 contracts. As long as nobody thinks that you are trying to manipulate or corner the market, you’re probably fine. The economic reality is that you are just asking someone friendly to buy 4000 futures contracts and hold them for you. In stocks, that would be called “stock parking” and you would go to jail for it. In futures trading it’s done all the time. Go figure.

1.The law of supply states that: (7.13 points)

demand increased when supply increases

if the price of a good increases, firms buy less of it

if the price of a good increases, the quantity supplied increases

as people’s income increases, the supply of goods increases

2.The law of supply states that a decrese in the price of a kayak leads to (7.13 points)

an increase in the supply of kayaks

a decrease in the quantity of kayaks supplied

a decrease in the supply of kayaks

a increase in the supply of kayaks supplied

3.The supply curve is upward sloping because (7.13 points)

as the price increases, suppliers earn more by increasing the quantity they produce

supply increases as costs rise

supply increases as productivity increases

Both answers (a) and (c) are correct

4.Which of the following increases the quantity supplied of compact discs, by does NOT increase the supply of compact discs (7.13 points)

an increase in the price of the resources used to produce compact discs

an increase in the price of a compact disc

a decrease in the price of a compact disc

a decrease in the number of suppliers of compact discs

5.A decrease in the price of a complement used in the production of a good (inputs) leads to (7.13 points)

a decrease in the supply of the good in question

and increase in the supply of the good in question

an increase in the quantity supplied of the good in question

no change in the supply of the good in question

6.Which of the following increases the supply of gasoline (7.13 points)

a decrease in the price of a resource used to produce gasoline, such a crude oil

a decrease in the demand for gas guzzuling SUV’s

an increase in the price of gasoline

a situation where the quantity supplies exceeds the quantity demanded

7.It it expected that the price of a bushel of wheat will increase in one month. This belief will result in (7.13 points)

a decrease in future supply of wheat

no change in current or future supply of wheat

an increase in current supply of wheat

a decrease in current supply of wheat

8.If the number of companies producing computer chips increases, then the (7.16 points)

supply of memory chips does not change

quantity of memory chips supplied increases

supply of memory chips increases

supply of memory chips decreases

9.An increase in the number of fast-food restaurants (7.16 points)

increases the demand for substitutes for fast food meals

raises the price of fast food meals

increases the demand for fast food meals

increases the supply of fast food meals

10.Researchers have found a hybrid of corn that is cheaper to grow. This technological breakthrough (7.13 points)

increases the demand for corn

increases the supply of corn

decreases the supply of corn

Both answers (a) and (b) are correct

11.WHich of the following shifts the supply curve for oranges (7.16 points)

a newly discoverd increase in the nutritional value of oranges

an increase in the price of bananas, a substitute for oranges

an increase in the income for all orange consumers

disaterous weather that destroys about half of this years orange crop

12.Which of the following shifts the supply curve for popcorn LEFTWARD (7.16 points)

a decrease in the number of popcorn suppliers

a decrease in the price of popcorn

an increase in the price of popcorn

a technological development in the production of popcorn

13.Autoworkers negotiate a wage increase. How does this change affect the supply curve of cars (7.16 points)

it shifts the supply curve leftward

it shifts the supply curve rightward

supply curve slopes upward

it does not shift the supply curve. There is only a change in the quantity supplied

14.Over the next several years the number of internet firms is expected to increase. As a result, the supply of internet services will ______ and the supply curve of internet services will shift _______ (7.16 points)

increase;leftward

decrease;leftward

increase;rightward

decrease;rightward
15.

See Today’s Video: www.lind-waldock.com Lind-Waldock Strategist Jim Barrett discusses the grain futures markets, specifically the corn, soybeans and wheat market. Topics covered: corn’s large trading range; export news; grain deal between China & Argentina; Gold & silver; Quantitative easing.

See Today’s Video: www.lind-waldock.com Lind-Waldock Strategist Frank J. Cholly discusses the grain futures markets in this daily futures market update. Frank dicsusses corn, soybeans and wheat.

See Today’s Video: www.lind-waldock.com Strategist Frank J. Cholly discusses the agricultural futures markets, specifically corn, soybeans and wheat.