What is it with this week and bad arguments coming back from the dead? First the terrible research from Simon Lack resurfaces in a pair of articles slamming hedge funds. Now we get an “exposé” asking whether the government (and CME) is helping speculators manipulate the grain market. The article is little more than tired old cries of “greedy speculators” wrapped in criticism of High Frequency Trading (HFT) and sprinkled with some nutty conspiracy theory for good measure.
We’re talking about this article from Salon alleging that the USDA and the CME are conspiring to screw over pretty much everyone while enriching “greedy speculators” who use High-Frequency Trading (HFT) to gain an unfair advantage. In short, the author thinks that the CME’s decision to expand trading hours (and subsequent decision to trim them back down) plus the USDA’s decision to change the time at which grain reports are released amounts to evidence that the two are just lapdogs for the evil HFT overlords. Apparently, having those grain reports come out in the middle of the day is disadvantaging all of the mom & pop farmers of the world, allowing the HFT algobots to manipulate the price of grains – which of course, means that the price will go higher.
There’s so much crazy here, it’s hard to know where to start. We’ve covered the inanity of these “greedy speculator” arguments before… but this one takes it to a new level.
First of all, yes, the ongoing saga of the CME moving trading hours back and forth has been a little ridiculous. They expanded the hours because some traders wanted it, and then they cut hours back because others complained. Not everyone wants the same schedule… hardly scandalous (or surprising).
Second, does anyone really believe in the image of the ‘poor farmer’ anymore. Sure, there are some small local area farmers who may be just scraping along; but the majority of farming these days is done by large multi-million dollar agribusiness families. Bloomberg’s recent article notes that farm net income this year will reach $128 Billion!
But the idea that really misses the mark is that HFT is driving food prices up. First, there’s the fact Corn futures prices are down about -6% this year, and Wheat futures prices down about -10%. Second, these rapid-fire algorithmic traders are constantly moving in and out of the market, scalping pennies on trades, not driving major price trends. At the end of the day, we’re not huge fans of HFT, either. But to us and most of the CTAs we talk to, the intra-day action really doesn’t matter. For the most part, we’re just concerned with where prices are at the end of the day, week, or sometimes even the month. Those long-term trends are driven by supply and demand and the global economy’s prospects, not a shadowy cabal of government and corporate forces sitting in their skull-shaped lair laughing at the plight of the peons below.
P.S. – The National Introducing Broker Association is running a poll on the change in grain trading hours, the results of which will evidently be released in their June newsletter. We’ll be interested to see the results, but it probably won’t settle anything in the CME’s ongoing (and probably impossible) quest to please everyone with the grain schedule.