Welcome to "Today's Exchange Rate" your online source to get today's exchange rates and information about online currency trading. We are on a mission providing Today's Exchange Rate and related futures exchange traded futures markets information, helping commodity traders trade commodities markets successfully with lower risk, but substantial profit potential.
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Today's Exchange Rate has a strong bearing on commodity price issues - Grain elevators and processors, are important purchasers of grains and oilseeds from producers. Those agricultural firms rely on well-functioning futures markets for price discovery and to help hedge price and inventory risk. One of the bedrock fundamentals on which hedging strategies are predicated is consistent and reliable convergence between cash and futures prices.
Today, that previously reliable relationship between cash and futures has slowly declined over time to a point where many commercial grain traders, farmers and market hedgers are now questioning the effectiveness of being an active futures trader involved in foreign exchange trading and trading exchange traded futures contracts. It appears convergence occurs less often and only for short periods of time compared to how the markets behaved over previous decades. Click now for the Trading Tip of the Day.
The price band, or range, of convergence has widened due to several factors, including:
1) higher and more volatile transportation costs;
2) demand for storage created by bio-fuels growth; and
3) the futures market running ahead of cash values due to passively managed, long-only investment capital.
4) Today's Exchange Rate which heavily impacts the value of the US dollar and exports and imports depends to a large measure on the foreign exchange markets currency trading.
During the past decade, it looks like the agricultural commodity futures markets have become more volatile and also weaker vs their historical trading activity, the corn market is a good grain market to trade, with soybeans, soy derivatives and wheat commodities futures prices more dramatically effected - thus, the convergence effect has deteriorated:
This lack of convergence or divergence as some are calling it is evident in wider basis levels between cash and futures prices. Cash bids to producers at any given location and time still reflect the true and intrinsic value of grains and commodities, but rapid advances in futures price levels have widened basis to levels not historically expected. This wider basis can sometimes make commodity prices appear too cheap at the local grain elevator.
Various factors are at work to influence price levels and basis: transportation and fuel costs; changes in supply/demand fundamentals; carry-over inventory levels; farmer selling; storage rates; foreign currency exchange rates; this and more. Changes in any of these factors can result in significant changes to basis levels, and today we are seeing many changes occurring simultaneously. However, we believe one new factor the entry of large amounts of long-only, passively-managed investment capital going into agricultural futures markets is causing a disruption in the markets.
Financial Liquidity Issues - Decreased commodity market hedging efficiency due to deteriorating convergence and unpredictable basis patterns are not the only concerns for commodities hedging in the grains market and other agricultural commodity traders today. As a result of significantly higher commodity futures prices, driven in part by investment capital, farm elevators who purchase cash grain from farmers for deferred delivery have been hit with extremely large margin calls on their hedge accounts. Long-only investment funds account for a significant share of open interest in the CBOT grains and oilseeds contracts, such as bean-oil. These passively-managed, long-only contracts are not for sale at any price for extended periods of time, resulting in elevated prices not reflective of demand, increased speculative interest in the commodity futures markets, the cash market and commodity futures price volatility, combined with ongoing pressure on banking resources to fund trader brokerage account margin requirements.
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