Trading Sugar Futures

If you’re planning on trading sugar, or any commodity market for that matter, it’s essential to have at least a grasp on current supply and demand fundamentals and the news that may effect them. One place to go to if it’s agricultural statistics you seek is, The United States Department of Agriculture (USDA).

The following is a step to getting you to the meat of the USDA website:

1) Start by going to the home page of the USDA (www.usda.gov)

2) Under the “Browse by Subject” tab on the left side of the page, click on the “Agriculture” link.

3) Under the “Related Topics” tab on the right side of the page, click on the “Data and Statistics” link. Here’s the link in case you’re having difficulties http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?navid=DATA_STATISTICS&parentnav=AGRICULTURE&navtype=RT

Whether you’re interested in trading sugar, grains, cotton, coffee, or livestock, you now have access to mountains of agricultural and trade data. Isolating some of the most commonly used statistics is a good place to start.

Once you get to the “Data and Statistics” portion of the USDA’s site you’ll notice a couple of things. On the left and right hand sides of the site you can look around by the topics of interest. If you’re having trouble finding what you’re looking for, these tools might be able to help. Another item you’ll notice is that the data is broken down into three different branches of the USDA: Economic Research Service (ERS), Foreign Agricultural Service (FAS), and National Agricultural Statistics Service (NASS).

A helpful area of the site is the “Production, Supply, and Distribution Online Database (PSDOnline)” link under the FAS sub-category. Here you’ll find global sugar beginning and ending stocks, production, imports/exports supply, and use. Each category is broken down by region and by country. You’ll find this year’s projected numbers along side the last two crop year’s figures. The USDA FAS’ PSD can also be downloaded into excel spreadsheets. This is another useful tool if you want to graph some of these figures out in order to have a visual of the trends.

The PSD database is just a little information to put at your fingertips. Spend some time browsing around the site. There is a lot of information found here. It will benefit you to learn all you can about the sugar markets.

Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.

The Billion Report : Gold & the U.S. Dollar

Throughout history, gold has served as a means of trade and commerce. It has been both currency and the definition of exchange. The dawn of paper money and other coinage brought changes to the world of gold. Money from different countries was marked as redeemable for gold and/or silver bullion. Exchange rates were set by this metals backing. This standard was abandoned by most nations through the twentieth century. New methods of currency exchange were adopted, many of them leading to a US dollar peg. Despite the changes in currency exchange methods and monetary policies over the centuries, the link between the money and metal is just as strong today.

The US Dollar

Gold prices that are familiar to most traders are quoted in US dollars. This link to the US dollar is quite different from a century ago. When paper dollars first made an appearance, they were backed by gold and silver. The exact amounts specified in the Coinage Act of 1837 were 24.75 grains of gold and 371.25 grains of silver. It takes 480 grains to make a troy ounce. This bimetallic standard, as it was known, was dropped in 1900 when the Gold Standard Act set the dollar as 23.22 grains of gold or $20.67 for a troy ounce.

The quantity of grains per dollar was lowered on more than that single occasion. In the 1930s, it was 13.71 grains which put the price per troy ounce of gold at $35. By the early 1970s, a troy ounce of gold was over $40 and President Nixon had ended the redemption of currency for gold. The currency was allowed to float. When the Federal Reserve began to increase the money supply the value of the US dollar fell. This kind of currency depreciation, not just in the United States but also in other countries, is often cited as a reason for the increased value of gold.

Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

The recent fallout from the housing and credit issues have contributed to another round of currency depreciation and some historic gains in the US dollar. The lack of imminent economic recovery could fuel several issues to move the US dollar and gold by extension.

The first factor to consider is the effort to stimulate confidence and economic growth. The Federal Reserve has pledged to keep historically low interest rates and various forms of stimulus money and programs have been set into motion by the US government. This has led to an influx of money and an even wider deficit. Sure, other nations across the globe have the same issues which can sometimes bolster dollar investment. But generally speaking, these efforts have pared back the value of the dollar, contributing to the gain in gold prices. These efforts have not borne fruit yet, and that kind of flop can affect general investor and consumer confidence. That leads to the second factor to be aware of, the investor’s perception of the US economy.

The average investor needs to have confidence that the economic condition in the United States is improving; otherwise, there will be hesitation when it comes to moving investment direction. For most people, the fear of the collapse in the stock market and other markets brought a general exodus from those assets and a plunge into precious metals. Every bad or benign economic report will continue to weigh on those investors. A true signal of recovery and sign of how long the good times will last will be needed to inspire more investors to profit taking and an exit from gold positions.

Finally, the fact that gold is priced in US dollars means that the exchange against other currencies which traditionally spell weakness in the dollar could mean gains for gold. The US dollar value comes from a basket of other currencies, most heavily geared in the direction of the Euro. Normally this means that strength in the Euro spells a downturn in the US dollar. This kind of strength can come from positive economic outlooks for any of the Eurozone member nations. The link between the two markets doesn’t run point for point, but it is definitely a factor that can impact pricing.

Summary

In the past decade, the link between an increase in money supply and gold price has been explored extensively. The simple fact is that the purchasing power of gold remains pretty healthy even when the currency it is valued in declines. In the case of the US dollar, the drop in value has stemmed from a lack of confidence in the economic health of the nation. The fear that grips the marketplace led directly to other assets being liquidated and a migration to gold investment. Purchasing gold is treated as the equivalent of saving for a rainy day. Why buy dollars to stuff into the mattress when the future of the US economy is so uncertain? The bottom line is looking for an investment that will maintain some store of value, no matter how the world currency markets fluctuate. Gold, and silver to a certain degree, can function as that investment since they are likely to always be an easily recognized and tradable commodity.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense... that gold and economic freedom are inseparable. - Alan Greenspan

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Metals Prices

Metals Prices – Futures vs Cash Market

It is important to distinguish cash market from futures markets when looking at a particular commodity. Many people do not realize that there is a difference between the two. The futures market is essential to a producer’s need to hedge against the actual commodity that they hold in their warehouse. In the paragraphs to come I will discuss the differences between cash markets and futures markets, and their advantages as well as disadvantages.

There are two basic options that exist for producers who want to forward price: forward pricing through cash contracts, and forward pricing directly through the futures market. Producers have commonly used the cash contracts, but did you know that only 5% of all farmers in the US use the futures market directly? Why would this be? Are cash contracts that much better than the futures market? Probably not; the real reason lies in a lack of knowledge.1

Let’s take a brief look at the advantages and disadvantages of forward pricing in the futures market vs. forward pricing through the cash market. Perhaps the most important point to keep in mind when discussing cash contracts and the futures market is that each time a contract is offered to a producer, someone is making that contract available by using the futures market. Because of this, cash contracts – at any point in time – will usually be less in price than a forward price in the futures market. By using a cash contract, we are paying someone else to forward price in the futures market for us.

Another advantage offered by using the futures market as compared to cash contracts results from the added marketing flexibility offered through the futures market. You can usually offset your contract at any time, meaning you do not have to deliver on the futures contract. With cash contracts, however, you are locked into delivering the amount of product at the price specified. This can create problems when crops fail to meet contracted levels or when potentially profitable copper prices must be passed up because of the fear of over-contracting.

Of course, all is not gravy in the futures market. Some of the disadvantages include the need of putting up margin money (good faith money required in order to trade futures contracts), the complexity of the market, and the understanding required to trade contracts. Another disadvantage is the inability to lock in an exact price (the price relationship between futures and cash markets, called basis, will fluctuate within a small range making a precise determination of forward prices offered impossible). Also, many producers desire to price less than the minimum standard contracts called for in futures markets. An example of this problem would be the producer with less than 25,000 pounds of copper (smallest copper futures contact) or 44,000 pounds of aluminum (smallest aluminum futures contract).

Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.