One of my favourite movie bad guys is Dick Laurent in David Lynch’s Lost Highway.
He’s a pretty ugly character. And he has some good final words, before getting popped by the lead character:
That’s what oats has been doing in the past few days – out-uglying some of the ugliest selloffs in recent ag commodities memory. Just look at these futures charts of the Chicago oats contracts:
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Those are the three nearest oats contracts, for summer, early fall and end of calendar year. That’s ugly stuff. And there’s not much reason for it. Other than something triggered the funds to sell, and that “something” doesn’t have anything to do with supply and demand or the other mundane things most people busy themselves with. Some trigger point was reached and that set off the firecrackers.
Oats futures are only semi-liquid, so when big positions get liquidated and cause other spec money to flush, there often isn’t a pile of commercial interest to come in and snap up the bargains. So you get selloffs like this.
Dramatic to watch. But pretty lousy if you were thinking of pricing new crop oats this week.
This is why most brokers are extremely leery to put clients in positions in markets with poor liquidity. And this is why the ICE is having trouble convincing people to take a chance with its new board grains futures. If you can wait out these squalls without wetting yourself, prices will revert to some decent representation of underlying S and D reality. But if you might need to get out of something fast, therein lies the danger.
