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Placing certain Futures Contracts on "Hold."
Hi! Everyone: For years I thought that a trader couldn’t be long and short the same futures contract at the same time. Not too long ago I had a client who wanted to be both long and short an October Lean Hog contract. I told him he couldn’t do it. He said he could. So, I checked with my clearing firm. They told me he could if he gave specific instructions that both the long and short contracts be placed on “hold.” I thought I knew it all. Ha! Anyway, this client has been trading different spreads, some of which conflict with the others and normally should be offset, but he has placed his entire account on “hold” and there is no problem. I thought I would pass this along to you as I think there are very few traders who have this knowledge. I could be helpful at times. If you decide to use this procedure, just instruct your broker to place the trades that otherwise would offset each other on hold. But remember, when you decide to unwind some of these, be sure to have the broker tell his clearing firm to take the trades off hold and to offset them. All this is courtesy of your fabulous Bronco Bob! More goodies that you never knew are coming up! Don’t go away!
Watch Out for the Coffee Statistics! Is it all smoke and mirrors?
Oh! Yes! Coffee! To begin with, any reports coming out of Brazil are laced with both government and grower smoke and mirrors. Interestingly enough, Brazilian Coffee contracts aren’t deliverable on the NYBOT Coffee contracts. The other fundamental of importance are the storage facilities for NYBOT Coffee delivery here in the U.S. and overseas. They are in New York, Houston, New Orleans, Miami, and Antwerp! Yep! New Orleans!Watch out! Past history has been questionable in the New Orleans warehouse. Contract specifications call for a minimum of 100-pound bag size. The bags are made of sisal, henequen, jute,or “woven material.”Now, think about this. With the humidity percentage pushing 100% most of the time in New Orleans, even without Hurricane Katrina flooding, some of the oily beans used to get so rancid that even the rats wouldn’t eat them. Sisal, for God’s sake! You would think those pit vipers on the NYBOT who are responsible for creating the contract specifications would at least use 21st Century material requirements. Now, to top all this off, the warehouse is permitted to open and mix good and bad beans on the dock (Yuk!) to meet “minimum delivery standards.”The same thing is happening in the fungus and mold-laden warehouses in Houston and Miami, but New Orleans is the worst, according to what I have heard over the years. So what’s it all about, “Alfie?”Don’t’believe the warehouse stats! My guess is that at any particular time, 30% of all warehouse Coffee is “dog-house”Coffee,sold only to prisons and truck stops!
Soybean Crushers: Who Are These Guys?
I wanted to talk about the Soybean crushers today. Farmers’ Cooperatives started processing Soybeans in the U.S. in 1940 because of the lack of interest on the part of Cargill and Bunge and Continental Grains. Recent figures indicate that local farmer co-ops crush about half of all the Soybeans harvested in the U.S. They operate under the brand names of Gold Kist, Farmland Industries, Riceland Foods, Boone Valley, Land O’ Lakes and several other brands, selling what they don’t need to both domestic and international markets. All their crushing plants started out as screw press operations, but they are now all solvent extraction plants. Solvent-extracted dehulled soybean meal is produced by cracking, heating and flaking soybeans. The oil content of the conditioned product is reduced by the use of hexane or homologous hydrocarbon solvents to 1% or less on a commercial basis. The extracted flakes are cooked and ground into meal. To ensure its optimal nutritional value, meal for animal feed needs to be heated sufficiently high to inactivate certain non-nutritional factors, such as trypsin inhibitors. The process is known as toasting. Soybean meal is considered a premium product because of its high digestibility, high energy content and consistency. Over 80% of the soybean meal produced in the U.S. is hulled and processed in very large state-of-the-art solvent extraction facilities. High quality standards and an efficient production, handling and shipping industry in the U.S. ensure that export customers receive a consistent and high value product.
The farmer-owned plants are all state-of-the-art and compete directly with the likes of Cargill, ADM, and Bunge and are very powerful. The power that they really have is in the ability to shut down without great overhead expense whenever they wish. Soybeans by themselves have no use. The chief products are Soybean Meal and Soybean Oil. Each bushel of beans yields approximately 44 pounds of meal and 11 pounds of oil, along with about 2 pounds of pod material. If the crusher can’t make at least 20-cents per bushel net on products over the cost of the Soybeans, he will take a vacation, lay off his crew and do some repair and replacement work on the crushing plant. This procedure also occurs in early September, when the plants are closed for repairs in anticipation of the harvest rush in November. So, in essence, the rats in the pit can play while the cat is away, but bottom line is that the crusher really is the guy who controls the top and bottom of the Soybean market.
Crush and Reverse Crush spreads sound difficult, but they are easy to understand. In a Crush Spread, you buy the beans and sell the products. In the Reverse Crush spread, you do the opposite. If the profit margin that the crusher is getting is down near twenty cents per bushel, chances are the crusher will stop crushing. Since he is the only market for the beans, the elevators drop prices and he raises customer prices until he sees a chance to make a better profit. If he gets too greedy and is making a ton on his margins, the elevators will raise the price of beans, his customers will stop buying, and his margins go down. There are many other factors involved here, but in the simplest manner, this is the way it goes.To figure the crush margin, the following little formula should do it for you:(0.022 Meal + 0.11 Bean Oil) minus Soybeans should give you the difference in cents per bushel crush margin. Balanced spreads have multiple contracts on both sides. A one-one-one combination is OK though…Try it out. Compare it to what FutureSource or some other website has and if you have the same figure, you’re and expert!There are many more aspects of knowledge that I’ll share with you in the future!Stay tuned tomorrow for the reasons why the USDA crop figures are fiction!Bronco Bob
Crop Reports: Fact or Fiction?
When considering any Acreage reports from the USDA, remember that in the “old days” a County Agricultural Agent would go around and talk to all the farmers about their planting intentions. He or she would then contact the grain stores and banks in the county to determine who was buying how much and how much the fish-eyed banker was loaning to whom that season. Those days are long gone, and there isn’t a County Agent to be found these days! What happens now is that some smart USDA computer geeks take the equivalent of insurance actuarial tables to determine the approximate acreage. This is done in Washington in rooms filled with people who never saw a bean or kernel of corn or wheat. This also explains why at times the government makes a giant correction in its figures and the markets go “bananas.” So, what to do? Wait until the dust clears after each report, then check your charts and take appropriate action either long or short. One or the other will be right! Hmmm.Bronco Bob
Stop Losses: The Floor Knows Where They Are!
Let’s talk a bit about those stop-losses. The guys who handle the decks of open orders know exactly where and how many contracts are up for sale or purchase at all price levels. They aren’t supposed to show the deck to anyone else, but who can hold out on brother or cousin or nephew? Would you if you knew all your relatives on the floor were breathing down your back? So, in essence, the entire floor, minus a few out-of-the-loop Irishmen, load up and push the price hard with a lot of sales, finally triggering the massive stops the idiot fund managers have placed. It’s like shooting fish in a barrel! This pattern can go up or down, depending on where the most stops are at the time. So, when the last stop is hit, the floor, which had been covering its shorts all the way down is net long by that time and they run the price back up. The fund idiots see the market rising and buy back in, running the price even higher. By the close, the funds are net long again and the floor is flat the market, having made tons on both the downside and upside. Out in the boondocks, the lawyers, doctors, and Indian chiefs are studying their charts and high-priced technical programs, a day late and a dollar short. The game starts all over again the next day as the puffer bellies come on board on the long side, certain that the techinicals will lead them to nirvana. And so it goes…
C.O.T.: What does it all mean?
Many traders seem to be confused about the Commitment of Traders Report that comes out every Friday afternoon, but covers only up to the previous Friday. I thought I would cover some of the nitty-gritty with you: The columns that show the Commercials are self-explanatory; they are the Commercial interests. The columns that show Non-Commercials are essentially the Commodity Funds. The columns that show Non-Reportable are the small suckers (traders). To analyze the numbers, check the Weekly Net Change Column for each category to see how long or short they are in any particular commodity. There is a Weekly Net change column for each category, but that only shows how many more or how fewer contracts there are since the last Report. I find the most useful data to be when the Commercials change from a net position long or short from the previous data. If the commercials are changing their mind, I want to pay attention! The Fund data show this also, but I like to put more weight on the Commercials. As for the Non-Reportable (small trader), If he shows heavy concentration either long or short, I think it’s best to fade him and go the other way. Remember that this data is stale by one week, so there is a cushion of five trading days in between. Use all this stuff as just one of the fundamental tools you have on hand. From an analysis of many charts, I have found that when the Commercial flips, the time lag for a chart change to really show it is about a week, so in certain views, you might want to consider the data timely for the Commercials. This is not so for the Funds. I’ll send you a separate attachment of the latest COT tonight for you to look over. If you have questions, give me a call after market hours and I’ll be happy to confuse you with additional commentary!Bob
NEW BIODIESEL SOURCE!
JATHROPHA: THE PLANT PROFILE
INTRODUCTION:
Jatropha curcus is a drought-resistant perennial, growing well in marginal/poor soil. It is easy to establish, grows relatively quickly and lives, producing seeds for 50 years.
Jatropha the wonder plant produces seeds with an oil content of 37%. The oil can be combusted as fuel without being refined. It burns with clear smoke-free flame, tested successfully as fuel for simple diesel engine. The by-products are press cake a good organic fertilizer, oil contains also insecticide. It is found to be growing in many parts of India, rugged in nature and can survive with minimum inputs and easy to propagate.
Medically it is used for diseases like cancer, piles, snakebite, paralysis, dropsy etc. Jatropha grows wild in many areas of India and even thrives on infertile soil. A good
crop can be obtained with little effort. Depending on soil quality and rainfall, oil can be extracted from the jatropha nuts after two to five years. The annual nut yield ranges from 0.5 to 12 tons. The kernels consist of oil to about 60 percent; this can be transformed into biodiesel fuel through esterification.
Family: Euphorbiaceae Synonyms: Curcas purgans Medic. Vernacular/common names: English- physic nut, purging nut; Hindi - Ratanjyot Jangli erandi; Malayalam - Katamanak; Tamil - Kattamanakku; Telugu - Pepalam; Kannada - Kadaharalu;
Gujarathi - Jepal; Sanskrit - Kanana randa.
It is still uncertain where the centre of origin is, but it is believed to be Mexico and Central America. It has been introduced to Africa and Asia and is now cultivated world-wide. This highly drought-resistant species is adapted to arid and semi-arid conditions. The current distribution shows that introduction has been most successful in the drier regions of the tropics with annual rainfall of 300-1000 mm. It occurs
mainly at lower altitudes (0-500 m) in areas with average annual temperatures well
above 20°C (36F) but can grow at higher altitudes and tolerates slight frost. It grows on well-drained soils with good aeration and is well adapted to marginal soils with low nutrient content.
Botanical Features:
It is a small tree or shrub with smooth gray bark, which exudes a whitish colored, watery, latex when cut. Normally, it grows between three and five meters in height, but can attain a height of up to eight or ten meters under favourable conditions.
Leaves:
It has large green to pale-green leaves, alternate to sub-opposite, three-to fivelobed with a spiral phyllotaxis.
Flowers:
The petiole length ranges between 6-23 mm. The inflorescence is formed in the leaf axil. Flowers are formed terminally, individually, with female flowers usually slightly larger and occurs in the hot seasons. In conditions where continuous growth occurs, an unbalance of pistillate or staminate flower production results in a higher number of female flowers.
Fruits:
Fruits are produced in winter when the shrub is leafless, or it may produce several crops during the year if soil moisture is good and temperatures are sufficiently high. Each inflorescence yields a bunch of approximately 10 or more ovoid fruits. A three, bi-valved cocci is formed after the seeds mature and the fleshy exocarp dries.
Seeds:
The seeds become mature when the capsule changes from green to yellow, after two to four months
Flowering and fruiting habit:
The trees are deciduous, shedding the leaves in the dry season. Flowering occurs during the wet season and two flowering peaks are often seen. In permanently humid regions, flowering occurs throughout the year. The seeds mature about three months after flowering. Early growth is fast and with good rainfall conditions nursery plants may bear fruits after the first rainy season, direct sown plants after the second rainy season. The flowers are pollinated by insects especially honey bees.
Ecological Requirements:
Jatropha curcas grows almost anywhere , even on gravelly, sandy and saline soils. Itcan thrive on the poorest stony soil. It can grow even in the crevices of rocks. Theleaves shed during the winter months form mulch around the base of the plant. The
organic matter from shed leaves enhance earth-worm activity in the soil around the root-zone of the plants, which improves the fertility of the soil. Regarding climate, Jatropha curcas is found in the tropics and subtropics and likes heat, although it does well even in lower temperatures and can withstand a light
frost. Its water requirement is extremely low and it can stand long periods of drought by shedding most of its leaves to reduce transpiration loss. Jatropha is also suitable for preventing soil erosion and shifting of sand dunes.
Biophysical limits:
Altitude: 0-500 m, Mean annual temperature: 20-28 deg. C, Mean annual rainfall: 300-1000 mm or more.
Soil type: Grows on well-drained soils with good aeration and is well adapted to marginal soils with low nutrient content. On heavy soils, root formation is reduced.
Jatropha is a highly adaptable species, but its strength as a crop comes from its ability to grow on very poor and dry sites.
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