Last weekend I attended the R.J. O’Brien Introducing Brokers Conference in Chicago. This was the 13th annual IB conference and one of the most interesting. R.J. O’Brien remains one of the most respected futures clearing merchants in the world and the eighth largest clearing firm on the exchanges.
I was down on the floor of the CBOT/CME on March 6. It has been less than 20 months since my last visit, but there had been amazing changes taken place at the exchange. The CBOT and the CME have merged into one group, called the CME Group, and the NYMEX has also been purchased by the CME Group. The location where the CBOT was held was owned by the CBOT, while the old CME location was rented. The CME Group merged the old CME with the CBOT under one roof.
The old T-Bond pit is now the S & P pit. Most of the old trading pits are vacated. I counted just five people in the wheat pit. No one was in the center of the pit.
20 months ago, there were at least 100 in the wheat pit. Even the corn and soybean pits were nearly empty.
There were still a few people in the pits, filing paper; but most of the action has moved away from the pits and to the electronic screens.
While 2008 saw a record trading volume for agricultural products, over 80 percent of the volume was done electronically. The grain option pits were still full as the electronic option volume is still less than 10 percent.
In livestock, between 35 to 40 percent of the daily trading volume is done electronically, leaving the majority of the volume done in the pits.
However, the pit volume is decreasing each month and we are probably less than 12 months away from 75 percent of the livestock volume being handled electronically.
One of the highlights of a March 7 seminar I attended is a speech given by Dennis Gartman, publisher of the widely-read and respected Gartman Letter. Gartman provided five trading rules that you have to follow to be successful.
1. Averaging down will kill you. It’s the biggest mistake you can make.
2. Averaging up will kill you. It’s the biggest mistake you can make.
3. You have no idea how high or how low a market will go once it starts.
4. There is never only one cockroach. If one piece of news is heard, whether good or bad, there are more similar news items to follow.
5. Complexity breeds confusion. If you’re hedging or trading is too complex, you are apt to do nothing.
Gartman also predicted the economic recession will continue through 2010. The federal reserve has injected liquidity into the economy in October 2008. He said this was an excellent decision by the fed. Historically, it takes 9-
12 months for this liquidity to make its way into the economy.
According to Gartman, the housing and automobile industry will turn the economy around. Finally, Gartman indicated that funds still need to get out of long grain positions, which will likely occur in the month of May.
One panel discussion was another highlight of the conference, led by WNAX radio farm director and NAFB farm broadcaster of the year, Michelle Rook. Of the four panelists, all were bullish to the grains and livestock. As one panelist correctly pointed out, corn price direction will be heavily dependent upon planted acreage this spring and any possibly acreage revisions.
If planted corn acreage is higher this year, ending stocks potentially could swell to over 2.5 billion bushels. However, fewer planted acres could result in lower ending stocks, under 1 billion bushels. Another highlight that was indicated was hedge funds are buying land and skipping commodities, a trend reversal from previous years.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page