Iowa Public Television


Influence of Funds Felt in the Pits

posted on June 3, 2005

The arrival of June on the calendar means traders are keeping a close eye on the weather. For example, recent rains slowed the hard red winter wheat harvest in Texas and Oklahoma ... and limited the number of fresh yield reports.

At the same time, the long-awaited showers helped stabilize the condition of the wheat crop, which suffered through drought and freeze damage in May.

Weather, of course, is one of the determining factors for price, especially at the major exchanges. But the markets are moved by more than just timely rain. In recent weeks, the soybean trade in particular has been influenced by the activity of the funds.

Influence of Funds Felt in the Pits The funds are companies or individuals who see the commodity markets as speculative ventures or an investment tool. They do NOT have cash grain backing their position.

Typically, funds are non-commercial ventures, like international investment firms, or investment branches of commercial grain companies. Their opposites are non-fund investors, or commercials, a group of hedgers that might include elevators, crushers and other end-users.

The presence of the funds in the commodity markets has grown significantly in recent years, especially as a short-term investment tool. But one of the key roles played by the funds is to provide liquidity. Without the funds to take the opposite side of a hedger's position, the principles of trading futures contracts would be undermined. Even so, some market watchers contend the dominant position of the funds gives them undue influence in the pits.

Tags: agriculture markets news