Soybeans Futures History

Although there are several claims to the origin of soybeans, most believe its roots can be traced back to Asia. More specifically, the history of soybean use for human consumption goes back at least 5,000 years in the Chinese culture. Soybeans were proclaimed as a “sacred plant” by Chinese Emperor Shennong. If anyone was to claim a particular crop as sacred it’s Shennong. His name directly translates to “divine farmer” and he’s often referred to as the Emperor of Five Grains for his contribution to Chinese agriculture.

Fast forward a few thousand years to the early part of the 1930s; the U.S. is recovering from the Great Depression and the droughts of the Dust Bowl. At the time, Ford was doing more than building cars. A little known fact about Henry Ford is that he was one of the biggest proponents of soybeans’ uses. His financial contributions to the research of soybean applications directly assisted in the development of products like soymilk and soy-based fibers. Soybean markets were growing, and a proper place to trade them was becoming a growing need.

In 1936, the Chicago Board of Trade (CBOT), the first formal futures exchange in the United States, launched its futures contracts for trading soybeans; the first of its kind. Another product of 1936 was the Commodities Exchange Act that banned futures trading on non-designated exchanges. By consolidating soybean trading under one roof, the soybean futures market grew. These developments solved two large issues facing producers and consumers of soybeans. Having a futures exchange allowed for buyers and sellers of soybeans to meet and trade their goods resulting in proper price discovery. The futures market gave an accurate price reference for those who needed one. The other major issue that existed before exchanges was the lack of accurate supply and demand data. This resulted in supply gluts and shortages because producers weren’t able to properly assess demand needs. Formalized futures exchanges not only consolidated trading, but they also consolidated market data.

15 years after trading soybean futures markets began, the CBOT introduced futures on the soybean complex: soybean oil and soybean meal. Options on soybean futures products were released in 1984. These different products have all developed and grown in their own rights. They are widely used by spreaders, hedgers, speculators, and commercials. The historic development of futures markets are the reason that people trading soybean markets today have the versatility and choice to pick which financial vehicle suits them best.

(Soybean. Columbia Encyclopedia, Sixth Edition. 2001-07. Accessed Feb.25, 2009)

(Jane Reynolds, Phil Gates, and Gaden Robinson (1994). 365 Days of Nature and Discovery. Harry N. Adams, Inc., New York. p. 44. ISBN 0-8109-3876-6. )

(CBOT: About CBOT: History)

Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.

The Bullion Report : The Gold-Silver Ratio

The gold-silver ratio is among the many tools and topics that investors take a hard look at when it comes to precious metals. There are several moments in time that the ratio was made a permanent force by government decree. Even in modern trading, the ratio has a home in certain trading strategies. With both markets playing with record highs, it is worth explaining and exploring the ratio between these two markets.


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The gold-silver ratio is pretty straightforward math – to determine the ratio, look at how many ounces of silver it takes to buy a single ounce of gold. If gold were trading around $1,000 an ounce and silver around $20 an ounce, the ratio would be 1,000 over 20 or 50:1. The result is that a higher ratio is seen as a signal for cheaper silver versus gold and a high ratio signals more expensive silver. Older references regarding the mining resources for silver suggest that there is roughly 16 times more silver to be mined than gold, which sets up the older ratio valuations from countries like France, the US, and Great Britain. Today, the values for both metals are obviously constantly changing, but adherents to trade strategies based on this ratio look at historical references for potential trading opportunities.

Coinage acts in the United States during the 18th and 19th centuries placed the gold-silver ratio in the neighborhood of 1:15 or 1:16. When the bimetal standard was dropped, this shifted and the ratio has drifted high and low in subsequent generations. Events like the Great Depression, the implementation of Bretton-Woods, post-war prosperity, dropping of the gold standard, the Hunt Brother’s manipulation, and other price extremes in precious metals have been cited as significant shifts in the ratio.

Trading strategies based on the gold-silver ratio look at these previous ratio levels as possibilities for extremes which might present opportunities. Basically, if it takes fifty ounces of silver to buy one ounce of gold at one point, an investor who thinks the ratio may expand would look to sell or be short silver-related assets. There is still a substantial level of risk in the trade, and it would be based on the ability to correctly identify an opportunity in the ratio and the potential for a future shift. Trading the ratio can be done through various investment outlets. Some bullion bugs trading the ratio may do so without regard to the actual prices. In the same example, if an investor believed the ratio would expand from 50:1, they could convert 50 ounces of silver to one ounce of gold. If the silver price dropped and the ratio grew to 100:1, the same investor could convert that ounce of gold to 100 ounces of silver.

Using an average price for each precious metal, a chart of the gold-silver ratio over time might look a little like this:

Past performance is not indicative of future results.

To ratio traders, the suggestion of this chart is that extremes run the gamut from around 16:1 to nearly 100:1. The last decade has frequently produced numbers around 50:1 or 60:1. Therefore, any divergence from this could be viewed as a potential trade.

Summary

The gold-silver ratio is obviously another tool that can be employed by investors looking for particular signals when trading precious metals. The current analysis suggests that when compared to the rest of the decade, a ratio above 50:1 means greater opportunities in long silver positions. However, the extreme volatility seen as of late might mean the ratio has room to expand. There are also the recent lawsuits regarding silver price manipulation to consider. Most importantly, the current recession has yet to push towards a tangible recovery. This means that silver could still be highly susceptible to larger price movements to the downside as it is used in both industry and investment. The precious metals investment expansion could still see strong demand this year and next. The manufacturing industry might not. That means there is a possibility of a fundamental weakness in silver markets that needs to be accounted for when looking at the gold-silver ratio. If gold can retain its strength or outperform silver at any time, the downside pressure in the silver market might easily deliver another spike in the gold-silver ratio.

For your FREE gold trading kit, call (866)258-5997.

It means that the silver coins of the United States at whatever ratio is fixed, and I want the present ratio that we have now, 16 to 1, maintained precisely as it is. -Richard Parks Bland

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results. © 2010 Berkshire Asset Management, LLC

PitGuru.com’s Weekly Grains Review for Nov 8th, 2010

Friday saw a messy session with wheat and bean oil leading the way higher on relationship buying ahead of the report. Oil share widened on Chinese demand talk and possible production concerns coming out of Indonesia following the recent volcanic activity. There is no wipeout talked about but the light ash cover is coating leaves restricting photosynthetic activity. This is a concern for total production in a time of tightening global food oil supply. Wheat recovered from chart lows versus corn with protective buying seen in options. The WZ 750-800 call spread was bought all day with the WZ 750-775 call spread bought a couple thousand times. The most interesting play is in corn options with paper buying the CH 10.00 calls, the CK 11.00 calls and the CZ11 10.00 calls. This is obviously a gamma and slope play with delta a mute point with calls this far out of the money. Outside of this the market is seeing puts bought in bean oil as players start looking for the downside technical correction. Owning put vol covered is a smart way to play the put slope inversions with long futures helping counter the upside delta move. All in all a very supportive week with the market inching closer to key strike prices as the Dec option expiration approaches. Heading into the weekend the trade is asking itself, what comes next? What happens if the USDA lowers corn yield below 154? What if John Macintosh is correct and corn yield is 148? Is China’s recent absence from the bean export market the first piece of evidence that they are now covered through March? Will the USDA raise bean exports 50 million bushels and if so, where do they get the extra beans? Do they borrow from the “residual” sludge fund or are they going to raise the yield? Bean ending stocks, though larger than last year, are still too low to be comfortable making the trade jittery.

The weekend offered little fresh information leaving the trade erratically choppy heading into the November report. Early strength was seen in the wheat market with this trade seeing a 20-cent range overnight after weekend weather did not offer any relief to the US plains or NW Australia. The macro situation overnight was slightly weaker with nothing dramatic but a slight contraction erased early overnight gains in grains. All markets ended slightly lower with bean oil losing the most following a contraction in palm oil. The USD is gaining versus the Euro on growing concern over Irish debt levels with this looking to continue into the day session.

The day ahead of the report is usually a protection day. This is when traders with naked length or shorts look to buy options as an insurance policy for immediate movement. Look for hefty action in Dec options again today, following the action the market saw on Friday. With the information currently at hand the trade is looking for a drop in overall corn yield, no change to a minor increase in bean yield with world wheat numbers expected to fall again. Overall this report should offer plenty of opportunity for the trade to change their bias if they want to. The “spin” following the trade will be interesting in that pundits are polarized at the momentum concerning the actual impact fundamentals will have versus the impact of the USD. I am a fundamental trader so I feel this will be fundamentals will win the day, if not tomorrow then the market has to wait for the final numbers on the WASDE report come January.

The market looks to open slightly lower to start the day with a weaker crude market and a sizable (100+) move in the USD over the Euro. All factors look bearish heading into the report but do not get enamored with bearish sentiment until we get tomorrow’s numbers behind us.

I am currently in Cartagena Colombia at an international conference of wheat producers and consumers. Following the conference I hope to have a better idea of what the actual world producers are looking for concerning protein, production and overall producer sentiment. From early indications I estimate that the world crop will be big but overall quality is a concern making the wheat versus corn spread a feature following the WASDE report.

World production numbers are going to be closely scrutinized. Focus on Argentina, Brazil, Australia, Russia and look for possible changes in the Chinese numbers. The USDA is currently 16 MMT above private forecasters concerning Chinese corn production so I think this a possible bomb about to go off. The direction of the impact following the grenade is yet to be seen but I have to believe that the upside is the path of least resistance for corn and all agricultural markets due to growing world consumption and questionable weather patterns. The La Nina effect is stated to be the largest in 70 years. If this is true, the Latin American crops are in for a tough struggle as planting approaches completion.

High Marks

Today the markets eagerly anticipate an announcement from the Federal Reserve as it wraps up a two day meeting. The focus will fall on the full measure of proposed quantitative easing. Heading into the report, there has been little doubt that the Fed will take some easing measures and that the US dollar and metals markets will react. So far this year, gold and silver have made fresh highs, reigniting interest into the high marks of the past and the events that motivated them.


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The fundamental focus for the last few years has been relatively narrow, falling on a handful of US dollar events and a broad picture of the global economic landscape. The housing and credit crisis precipitated reactions from the Federal Reserve that led to easing and a drop in the US dollar. Subsequent economic fallout including high unemployment and stagnant growth led some investors to the ‘haven’ of precious metals as an alternative asset. This has continued to bring some high price levels in both gold and silver.

The march to new highs in gold was nearly three decades in the making. In 1980, the price of gold topped $850 amid a climate of high inflation, high oil prices, and high geo-political tensions, specifically in Afghanistan. The price of gold tumbled following that peak, apparently bottoming out above $250 an ounce in 1999. The low came in as investors speculated that central banks would begin selling their gold reserves. Once the central banks of Europe signed their gold agreement limiting gold sales, the stage was set for a price comeback.


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

In the decade that followed, gold prices picked up steam, gathering momentum as geopolitical tensions began to rise and commodities prices picked up. Starting in 2006, the weakening dollar provided a likely catalyst for investors to move towards commodities. The subsequent price peaks in gold hit a climax in January of 2008 when gold broke that $850 price high. Each new high shook out some investors as profit taking ensued, but the market forged ahead to the $1,000 an ounce level, breaking through in March of that same year. After that, gold prices appeared to fall victim to the commodities exodus as investors began to focus on demand fundamentals and the potential for recovery. Plenty of stimulus was being poured into the global economy in an effort to restart the growth engines, and it appeared to have the potential to work.

However, gold came back after falling below the $700 level. Investment interest and demand, especially in ETFs, grew exponentially last year. That kind of hunger for the perceived haven of gold propelled the market back over the $1,000 mark and beyond. For now, gold has already managed to top $1,380, and there appears no shortage of analysts who thing the twin threats of inflation and fear could move things higher.

Gold prices have not stood alone in hitting fresh highs. Silver has also managed to break out, topping previous high marks. However, cresting the all-time peak in silver prices could be a little more challenging. The peak price in silver took place in the 1980s under the price manipulation of the Hunt Brothers. At that time, silver prices could have been faring reasonably well in tandem with gold as fundamentals like inflation and political tensions affected commodities priced in US dollars. However, the exponentially high silver spike above $50 had some help from the Hunt’s cornering the market. Once the chase had ended, the Hunts were bankrupt and many speculators suffered huge losses.

Finding a high mark in silver prices absent of manipulation, it would seem natural to take a look at the prices in 2008, when gold and other commodities were logging price peaks. In March of that year, silver prices topped $20 an ounce. This level was only recently breached again. Unfortunately, this new high comes as more accusations of manipulation come into play. CFTC commissioner Bart Chilton recently issued a statement that suggests they are looking into the potential that there were attempts to influence silver prices. (1)


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Summary

There seems to be little doubt that the recent economic crisis and the reaction to the same have helped propel precious metal prices higher. Gold, as well as silver, have been the beneficiaries of renewed interest from investors. As a result, prices gained a great deal of momentum and hit fresh highs. Going forward, it seems that there is plenty of room for price action on both sides of these high marks. On one hand, the new peaks are likely to inspire intermittent profit taking. On the other hand, the bigger picture could spell strength and support for these markets. What it comes down to is the strength of the fundamentals behind the move. Price highs based solely on fear and manipulation face a greater challenge in finding support on the way down. Those are weaker fundamentals. Gold and silver prices would need to find strength in the possibility that investor and central bank demand for gold will remain vibrant and that the US dollar will remain in a pattern of competitive devaluation.

For your FREE gold trading kit, call (866)258-5997.

1 http://www.bloomberg.com/news/2010-10-26/silver-market-faced-fraudulent-efforts-to-control-price-chilton-says.html

Gold and silver are no doubt subject to fluctuations, from the discovery of new and more abundant mines; but such discoveries are rare, and their effects, though powerful, are limited to periods of comparatively short duration. - David Ricardo

Pitguru Review for November 1st: Energies & Metals

Energies

By PitGuru Daniel Cronin

Crude Oil still stuck in this trading range but after this week the market will have much better direction on where it wants to go after the FOMC meeting and the non-farm payrolls at the end of the week. Crude has been stuck between $80 and $84 for the last month now but speculation over the weekend led that the Federal Reserve will announce another round of credit-easing measures to help spur growth in the U.S helped the Euro rally and crude as well above $82 per barrel. WTI spreads have gained in recent days and so has the market down from support at $80.50. I believe the market will rise up to the resistance of $82.70 today before any news comes out, and then it’s all fair game from there. $84.50 definitely can be tested if credit ratings ease even further so keep an eye out for this number.

Natural gas has been on a real surge since the November contract came off the board. December Natural is now above $4.08 looking to test key resistance of $4.10 as this market has shot up since consecutive inventory reports have come out better than expected. This market looked to be headed to $3.00 but after the depressed November contract went off the flood gates opened up and buyers came in chomping at the bit to get a piece of the market. For now it needs to see a nice close above $4.10 to continue momentum.


***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

Metals

By PitGuru Daniel Cronin

Gold and Silver both have rallied since being semi liquidated the last two weeks as new buyers came into the market as the Euro rallied against the USD ahead of the FOMC meeting this week. Per Bloomberg, “Precious metals have gained this year as central banks maintained low interest rates and governments spent trillions of dollars to spur growth. Silver has advanced 48 percent in 2010 and palladium has surged 60 percent, both beating gold’s 24 percent rise. Precious metals have outperformed global equities, Treasuries and most industrial metals, boosting investment in exchange-traded products backed by the metals.” (1) I think an easing of the rate will surely send Gold up above $1,365 and Silver past $25.00 as these markets already have momentum behind them - another positive for them will only send these to higher heights.

Copper rallying back up to $3.80 from last week’s low of $3.71 amid the FOMC meeting as both equities and Euro rise. $3.92 is key resistance so this market will be watching out and waiting in anticipation of the Fed's next move. For now markets are trending higher but can be thrown for a loop if the Fed decides not to do anything and should unemployment rise, sending Copper back to $3.71.

1 http://www.bloomberg.com/news/2010-1...s-meeting.html