SEC Charges and a "Blend Wall": Weekly Market Comments

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Weekly Market Comments: 4/21/10

Monday's double digit decline in corn prices can't only be attributed to the fast pace of corn planting. The latest NASS Crop Progress Report takes a detailed look at the current planting numbers.

SEC Charges against Goldman have Agricultural Impact

The Goldman roll is a 5 business day period when the Goldman Sachs Commodity Index is rolled forward (in 20% increments) into the next futures expiration month. The Goldman Sachs Commodity Index is a world-production weighted index widely used as a hedge fund tool for commodity-based financial products. The roll occurs from the 5th to 9th business day of the month preceding the futures expiration month.

Forty years ago, when many of today's retiring grain traders came into the business on the heels of the Russian grain trade, the ability to follow the basics of exports, transportation and feed usage would have carried you in the grain business. This weekend's WSJ article about John Paulson and Goldman Sachs brought up reflections on how hedge funds have overtaken the market and mercantile functions have been reduced to side attractions.

While open outcry on the floor of a grain exchange had it Achilles heel, there was some ability to connect the dots as they related to flow in the marketplace. Now with complex deals being made off-floor, there is absolutely no "transparency." The rise in electronic trade execution has only exacerbated this problem.

Approaching the "Blend Wall"

Sunday's article in the Des Moines Register warns of the ethanol industry hitting a "blend wall." It highlights the challenges and recent profit margins the ethanol industry is facing.

These articles resonate here at CFO Systems because they show anyone dealing with the multifaceted nature of today's commodity market the need for ag employees that are in the vanguard of the evolutions taking place in a global world.

We believe positions are unique to each person's risk bearing ability, marketing strategy and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore carefully consider whether such trading is suitable for you in light of your financial condition.