The first thing they wanted to know, as huge buyers of U.S. grain, was why do the funds always push grain prices up? For years, many U.S. farmers have wondered just the opposite about which way the funds push the market.
Photograph: Josh Sears
A brief history of the funds
Until the late 1970s, commercials like Cargill, Bunge and Dreyfus, and others were the biggest traders in the grain market. Speculative traders large and small, locals, and commission houses followed them closely since they’d influence prices from day to day. Of course, fundamental factors like the weather and supply-demand considerations determined overall price direction, just like today. Conventional funds trade from either the long or short side of the market, usually determined by technical indicators such as charts and moving averages.
These funds gained prominence in
the late 1970s, replacing commercials
as the main day-to-day market influ-
ence, the group many other traders
looked to for guidance. The locals,
Vic Lespinasse, honorary CBOT member, has traded on the floor for over 30 years. for example, would often buy when
the funds were buying and sell when
the funds were selling, just as they
Knowing how they impact for many years, trading from both used to do when the commercials
markets can help farmers long and short positions. They have were active in previous years.
routinely been blamed by produc- Over the last half dozen years
track index and hedge funds ers for pushing prices lower and by or so, a new group has replaced
By Vic Lespinasse consumers for driving prices higher. the conventional funds in market
For example, several years ago a importance, just as the conventional high-level Chinese trade delegation funds had replaced the commercials visited the Chicago Board of Trade. years before.
Conventional commodity funds have had a major presence in the grain market
This new group is the index funds, distinguished from conventional
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