Is the government helping speculators manipulate grain futures? No.

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.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.