commodities market – require delivery

[alarmclock]

what do you think would be the impact if the commodities futures market were modified so that participants must be able to either supply, store or otherwise take delivery of the commodity in question? The intention would be to lock out hedgies and other investors unless they were willing to invest in the associated infrastructure. This would leave in primary producers (farmers, miners, derrick owners), primary consumers (airlines, food processors, etc), and so on.

Completely infeasible? If it is a terrible idea, why do you think so?

[Doofrat]

If your an airline selling tickets today based on $2.00/ gallon jet fuel, you need to be able to hedge against fuel prices rising. If you require delivery, then who will buy the other side of the rising fuel prices bet? It’d have to be another commodity consumer (or a producer or storer), but other airlines and other consumers of oil products aren’t going to get on the other side of this bet, they have to hedge against rising prices (consumers), and on the other side of the bet(producers, storage), I doubt that oil companies would like to take delivery of a bunch of cheap oil. (just what they need when prices are down)
Another problem is if your an airline (again, sorry) say you’ve got a contract with say Chevron to provide you with x amount of fuel for the next year, what happens when you have to take delivery of your contract as well?

[Doofrat]

If your an airline selling tickets today based on $2.00/ gallon jet fuel, you need to be able to hedge against fuel prices rising. If you require delivery, then who will buy the other side of the rising fuel prices bet? It’d have to be another commodity consumer (or a producer or storer), but other airlines and other consumers of oil products aren’t going to get on the other side of this bet, they have to hedge against rising prices (consumers), and on the other side of the bet(producers, storage), I doubt that oil companies would like to take delivery of a bunch of cheap oil. (just what they need when prices are down)
Another problem is if your an airline (again, sorry) say you’ve got a contract with say Chevron to provide you with x amount of fuel for the next year, what happens when you have to take delivery of your contract as well?

[Doofrat]

If your an airline selling tickets today based on $2.00/ gallon jet fuel, you need to be able to hedge against fuel prices rising. If you require delivery, then who will buy the other side of the rising fuel prices bet? It’d have to be another commodity consumer (or a producer or storer), but other airlines and other consumers of oil products aren’t going to get on the other side of this bet, they have to hedge against rising prices (consumers), and on the other side of the bet(producers, storage), I doubt that oil companies would like to take delivery of a bunch of cheap oil. (just what they need when prices are down)
Another problem is if your an airline (again, sorry) say you’ve got a contract with say Chevron to provide you with x amount of fuel for the next year, what happens when you have to take delivery of your contract as well?

[Doofrat]

If your an airline selling tickets today based on $2.00/ gallon jet fuel, you need to be able to hedge against fuel prices rising. If you require delivery, then who will buy the other side of the rising fuel prices bet? It’d have to be another commodity consumer (or a producer or storer), but other airlines and other consumers of oil products aren’t going to get on the other side of this bet, they have to hedge against rising prices (consumers), and on the other side of the bet(producers, storage), I doubt that oil companies would like to take delivery of a bunch of cheap oil. (just what they need when prices are down)
Another problem is if your an airline (again, sorry) say you’ve got a contract with say Chevron to provide you with x amount of fuel for the next year, what happens when you have to take delivery of your contract as well?

[Doofrat]

If your an airline selling tickets today based on $2.00/ gallon jet fuel, you need to be able to hedge against fuel prices rising. If you require delivery, then who will buy the other side of the rising fuel prices bet? It’d have to be another commodity consumer (or a producer or storer), but other airlines and other consumers of oil products aren’t going to get on the other side of this bet, they have to hedge against rising prices (consumers), and on the other side of the bet(producers, storage), I doubt that oil companies would like to take delivery of a bunch of cheap oil. (just what they need when prices are down)
Another problem is if your an airline (again, sorry) say you’ve got a contract with say Chevron to provide you with x amount of fuel for the next year, what happens when you have to take delivery of your contract as well?

[patb]

I guess you never heard of a Grain silo or fuel terminal.
All you need is a silo operator to rent storage which is cheap,
and frankly how commodity’s speculation works now.

People buy futures contracts and sell futures contracts
and close out the position before delivery.

If i buy Octobers corn crop, i’m usually planning a november sell date
anyways. or vice versa, my contract sells before it needs to be moved.

There have been a lot of tankers sitting offshore all year waiting for
oil to rise, so, that’s cheap storage too. Just pay the Baltic dry index rate.

[patb]

I guess you never heard of a Grain silo or fuel terminal.
All you need is a silo operator to rent storage which is cheap,
and frankly how commodity’s speculation works now.

People buy futures contracts and sell futures contracts
and close out the position before delivery.

If i buy Octobers corn crop, i’m usually planning a november sell date
anyways. or vice versa, my contract sells before it needs to be moved.

There have been a lot of tankers sitting offshore all year waiting for
oil to rise, so, that’s cheap storage too. Just pay the Baltic dry index rate.

[patb]

I guess you never heard of a Grain silo or fuel terminal.
All you need is a silo operator to rent storage which is cheap,
and frankly how commodity’s speculation works now.

People buy futures contracts and sell futures contracts
and close out the position before delivery.

If i buy Octobers corn crop, i’m usually planning a november sell date
anyways. or vice versa, my contract sells before it needs to be moved.

There have been a lot of tankers sitting offshore all year waiting for
oil to rise, so, that’s cheap storage too. Just pay the Baltic dry index rate.

[patb]

I guess you never heard of a Grain silo or fuel terminal.
All you need is a silo operator to rent storage which is cheap,
and frankly how commodity’s speculation works now.

People buy futures contracts and sell futures contracts
and close out the position before delivery.

If i buy Octobers corn crop, i’m usually planning a november sell date
anyways. or vice versa, my contract sells before it needs to be moved.

There have been a lot of tankers sitting offshore all year waiting for
oil to rise, so, that’s cheap storage too. Just pay the Baltic dry index rate.

[patb]

I guess you never heard of a Grain silo or fuel terminal.
All you need is a silo operator to rent storage which is cheap,
and frankly how commodity’s speculation works now.

People buy futures contracts and sell futures contracts
and close out the position before delivery.

If i buy Octobers corn crop, i’m usually planning a november sell date
anyways. or vice versa, my contract sells before it needs to be moved.

There have been a lot of tankers sitting offshore all year waiting for
oil to rise, so, that’s cheap storage too. Just pay the Baltic dry index rate.

[alarmclock]

I read that much of the rise in commodities prices right now is could be from billions of dollars chasing a fairly small commoties market. Sure the hedgies are helping *themselves* (albeit at some risk) by investing in this way. But is it reasonsble to let them use the necessities of life in order to dig themselves out of their hole?

I do remember reading that lehman (and goldman) own/owned some considerable oil storage facilities, so in this resepect they are willing to invest in the costly infrastructure as well.

Re doofrat: I believe the airlines, vis a vis tank farms at airports, can actually store many millions of gallons of fuel, and they surely use lots of it.

Anyway, if driving up the cost of wheat is the only way I can bag 15% this year then I wouldn’t do it. Maybe I don’t understand how the system works. Hopefully the excuse isn’t: “If I don’t do it, someone else will.”

[alarmclock]

I read that much of the rise in commodities prices right now is could be from billions of dollars chasing a fairly small commoties market. Sure the hedgies are helping *themselves* (albeit at some risk) by investing in this way. But is it reasonsble to let them use the necessities of life in order to dig themselves out of their hole?

I do remember reading that lehman (and goldman) own/owned some considerable oil storage facilities, so in this resepect they are willing to invest in the costly infrastructure as well.

Re doofrat: I believe the airlines, vis a vis tank farms at airports, can actually store many millions of gallons of fuel, and they surely use lots of it.

Anyway, if driving up the cost of wheat is the only way I can bag 15% this year then I wouldn’t do it. Maybe I don’t understand how the system works. Hopefully the excuse isn’t: “If I don’t do it, someone else will.”

[alarmclock]

I read that much of the rise in commodities prices right now is could be from billions of dollars chasing a fairly small commoties market. Sure the hedgies are helping *themselves* (albeit at some risk) by investing in this way. But is it reasonsble to let them use the necessities of life in order to dig themselves out of their hole?

I do remember reading that lehman (and goldman) own/owned some considerable oil storage facilities, so in this resepect they are willing to invest in the costly infrastructure as well.

Re doofrat: I believe the airlines, vis a vis tank farms at airports, can actually store many millions of gallons of fuel, and they surely use lots of it.

Anyway, if driving up the cost of wheat is the only way I can bag 15% this year then I wouldn’t do it. Maybe I don’t understand how the system works. Hopefully the excuse isn’t: “If I don’t do it, someone else will.”

[alarmclock]

I read that much of the rise in commodities prices right now is could be from billions of dollars chasing a fairly small commoties market. Sure the hedgies are helping *themselves* (albeit at some risk) by investing in this way. But is it reasonsble to let them use the necessities of life in order to dig themselves out of their hole?

I do remember reading that lehman (and goldman) own/owned some considerable oil storage facilities, so in this resepect they are willing to invest in the costly infrastructure as well.

Re doofrat: I believe the airlines, vis a vis tank farms at airports, can actually store many millions of gallons of fuel, and they surely use lots of it.

Anyway, if driving up the cost of wheat is the only way I can bag 15% this year then I wouldn’t do it. Maybe I don’t understand how the system works. Hopefully the excuse isn’t: “If I don’t do it, someone else will.”

[Author]

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