Mike Adams, Moderator Host, AgriTalk Radio
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Transcript of Mike Adams, Moderator Host, AgriTalk Radio
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Risk Management and the New Dynamics of Ag MarketsPerspectives from an Exchange, Commercial Participant and Academia
Mike Adams, ModeratorHost, AgriTalk Radio
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Bryan DurkinSenior Managing Director & Chief Operating OfficerCME Group
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Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05Jan
-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Sep-10
Apr-11
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Jun-12Jan
-130
100,000
200,000
300,000
400,000
500,000
600,000
Corn and Wheat Futures - Average Daily Volume2000-2013
Corn Wheat
Market Evolution: Increased Use of Ag Commodities
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Market Evolution: State of Futures Markets
1980s 1990s 2000s 2010s
Average Daily Volume* (contracts in millions)
0.8M contracts
1.8M contracts
0% electronic
Innovation / Electronification / Demutualization…. Innovation / Diversification / Globalization
• CME Group futures markets have become increasingly electronic
7.3M contracts
12.3M contracts
8% electronic 80% electronicHighest 88% electronic
Averaging 6% privately negotiated/OTC
*The average daily volume graphed assumes that CME, CBOT and NYMEX were combined the entire time – with NYMEX data beginning in 1983
Market Evolution: Factors Impacting Food Prices
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www.cmegroup.com/effectivemarkets
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David BaudlerPresident, Cargill AgHorizons
Nourishing ideas. Nourishing people.TM
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Demand: Rising world population and standard of living
actual and projected
33.5
44.5
55.5
66.5
77.5
82011 Population6.88 billion
GDP/Capita6.200(000 1997 USD)
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Supply: global food production, area and of yield
(grain, rice, major oilseeds)
19751979
19831987
19911995
19992003
20072011
1.21.41.61.82.02.22.42.62.83.0
production – bil mt
+98%
19751979
19831987
19911995
19992003
20072011
90100110120130140150160170180190
area and yield (1975=100)yield +76%
area +12%
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Global food commodity supply / demand(grain, rice, major oilseeds – bil mt)
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20111.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0production
consumption
1980-2003consumption
trend extended
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World Stocks
19761978
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
2012250.0
300.0
350.0
400.0
450.0
500.0
550.0
600.0
650.0
15.0%17.0%19.0%21.0%23.0%25.0%27.0%29.0%31.0%33.0%35.0%
Stocks / Use Ratio Ending Stocks
MM
T
Source: USDA Includes: Coarse Grains, Wheat, Oil, Rice
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US Wheat Stocks vs Price
19751978
19811984
19871990
19931996
19992002
20052008
20110
500
1000
1500
2000
2500
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
Ending Stocks Average Price
MBU
$ / B
ushe
l
Source: USDA
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US Corn Stocks vs Price
19751978
19811984
19871990
19931996
19992002
20052008
20110
1000
2000
3000
4000
5000
6000
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
Ending Stocks Average Price
MBU
$ / B
ushe
l
Source: USDA
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Iowa land values$ value per acre
3
1003
2003
3003
4003
5003
6003
7003
8003
9003
2012$8,296/acres
Source: Iowa State University
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Scott IrwinLaurence J. Norton Chair of Agricultural Marketing University of Illinois
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FAO Index of Real Food Commodity Prices,January 1990-May 2012
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“The Masters Hypothesis”
http://www.loe.org/images/content/080919/Act1.pdf
http://www.nytimes.com/2008/09/11/washington/11speculate.html
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CBOT Wheat Futures Prices and Index Trader Net Long Positions, January 2004-September 2009
200
400
600
800
1000
1200
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50
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Thou
sand
Con
trac
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Nearby Contract Price (right scale)
Index Trader Open Interest (left scale)
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Relationship between CBOT Wheat Returns and Index Trader Net Long Positions,
June 2006-December 2009y = 0.0002x - 0.0798
R² = 0.0187
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-12,000 -9,000 -6,000 -3,000 0 3,000 6,000 9,000 12,000
% C
hang
e in
Mar
ket P
rice,
Wee
k t
Change in Net Position, Week t
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“The current state of knowledge indicates only a few, and weak, findings that verify the assumption that the rise in financial speculation in recent years has increased (1) the level or (2) the volatility of agricultural commodity prices……Seen in this light, the alarmism about financial speculation should be classified as a false alarm: Those who desire to effectively combat hunger in the world have to take real-economy precautions to ensure that food supplies will match the envisaged increasing demands”
December 2012
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Pricing Function for Storable Commoditiesis Highly Non-Linear
Source: Wright (2009)
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Structural Changes in Commodity Markets in the Last Decade
•Electronic trading
•Online discount brokers
•Index investment
•Exchange-traded funds (ETFs)
•High frequency trading (HFTs)
•Real-time release of gov’t reports
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Per
cent
MonthCorn Soybeans Wheat
Percent of Futures Volume Transacted on Electronic Platform, 2004-2011
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