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Commodity Margin Hikes Continue: Next Up - Soybeans

Tyler Durden's picture





 

Earlier today, after highlighting the cotton margin increase, we said that next up were "coffee, soybeans, wheat." A few hours later we are right about at least one of three. Soybean margins have just gone up by $250 on maintenance to $2,750.We still believe that coffee, wheat, pork bellies, and gold will follow imminently, although gold may a stretch as the threat of a margin hike will have a far greater impact than it actually happening.

h/t John

 

 


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Wed, 11/10/2010 - 13:13 | Link to Comment Tiberius
Tiberius's picture

What is the medium to long term effect of this?  You need more money to buy commodities on margin, right?  But money supply is not a problem for big traders, right?  So do commodities take a slight pause so traders can regroup and then continue to surge?  

 

 

Wed, 11/10/2010 - 13:16 | Link to Comment Ragnarok
Ragnarok's picture

That's where I'm at. It doesn't change the fundamentals of the Fed printing and EM demand.

Wed, 11/10/2010 - 14:40 | Link to Comment sbenard
sbenard's picture

I had precisely the same visceral reaction. During the 2008 commodity bubble, when the news media was blaming "those evil speculators" for high commodity prices and politicians were pressuring the futures exchanges to raise margin requirements (yes, we've been through this before), I recall that prices dipped only for a short time before continuing their upward march.

The half life of this type of margin change is about twelve hours. It's market impact is not only short-term; it's also just temporary!

I'm looking at this as an opportunity to buy on the dips as overextended market participants are forced to liquidate their positions.

Wed, 11/10/2010 - 16:28 | Link to Comment rosiescenario
rosiescenario's picture

...yep...bought some more miners today. Hope they raise it again.

Wed, 11/10/2010 - 13:17 | Link to Comment jmac2013
jmac2013's picture

TD- do you think perhaps instead of QEII going directly towards pumping up Apple, Amazon, Google, etc., that the next round of liquidity will go towards surpressing commodities?  Just a thought.

 

Wed, 11/10/2010 - 13:19 | Link to Comment Ragnarok
Ragnarok's picture

They don't need QE for that they have ZIRP.

Wed, 11/10/2010 - 13:26 | Link to Comment DUNTHAT
DUNTHAT's picture

Good point. They'll manipulate all or anything to accomplish their "Wealth Effect" outcomes, i.e., inflating the hell out of the stock market.

Wed, 11/10/2010 - 17:26 | Link to Comment Flyingtrader
Flyingtrader's picture

Care to explain how one would go about "supressing" commodites?

Wed, 11/10/2010 - 13:20 | Link to Comment TWORIVER
TWORIVER's picture

Tyler,

 

Don't you think they would raise the margin requirement if the SP500 futures contract rallied 50% to new highs in less than 3 months? It's a reasonable action, but whether one chooses to accept that this is what can legitimately happen or not is up to them.

Wed, 11/10/2010 - 13:26 | Link to Comment SheepDog-One
SheepDog-One's picture

Good point...when do you think theyll raise margin requirements for stocks? 50% run up in a year wasnt quick enough for a margin increases on those I guess, probably deemed 'Goldilocks just right'.

Actual valuation doesnt matter either, just the timeline of run ups because by any measure PM's should be far higher priced than they are now and equities are at ridiculous overvaluation. But that doesnt matter to the central economic planners.

Wed, 11/10/2010 - 14:49 | Link to Comment Lord Blankcheck
Lord Blankcheck's picture

pro equities,anti commodites stance(always)

Wed, 11/10/2010 - 14:42 | Link to Comment sbenard
sbenard's picture

That's a great point. Why is it that they only scream and holler for increases on the margins of hard assets, but never for paper assets?

Wed, 11/10/2010 - 17:22 | Link to Comment DosZap
DosZap's picture

sbenard.

Because equities are paper, and are not a threat to the system.(Hard assets are no ones liablities).

Wed, 11/10/2010 - 13:20 | Link to Comment Arius
Arius's picture

good to see you removed stripers from the list...i was getting scared there for a moment...just a bernanke moment...

Wed, 11/10/2010 - 13:21 | Link to Comment gaugamela
gaugamela's picture

Tyler, coffee margins have been going up since the summer. Commodity margins go up when prices increase dramatically. There is no news here.

Commodity margins change daily depending on your broker.

Wed, 11/10/2010 - 13:27 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

Unless you're registered as a boner fide hedge.

Wed, 11/10/2010 - 13:23 | Link to Comment tahoebumsmith
tahoebumsmith's picture

If this gets some legs and starts a marathon it will be a record sprint to the finish line. The people that predicted the dollar bubble noted that these types of commodities would start the death march for the dollar and inflation would get out of control. With oil touching $90 a barrel and precious metals at all time highs, this chart added to the picture only confirms that QE2 will add more fuel to the fire. Once they lose control of inflation and the uncontrollable death spiral of the dollar, it will be game over and Bernanke can finally admit he is a total idiot!

Wed, 11/10/2010 - 13:24 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

Glenn Burka is a giant drama homo. Soros will crush him as he should.

Wed, 11/10/2010 - 13:33 | Link to Comment Arius
Arius's picture

that is just noise...the real news is gold...and both of them seems to have gotten the memo..

most importantly, what about you and me and this crisis which is sneaking on us without much fanfare...

Wed, 11/10/2010 - 13:47 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

It's going to destroy the wealth of the dollar faithful. Metal up or you will be sorry.

Wed, 11/10/2010 - 13:46 | Link to Comment tmosley
tmosley's picture

True justice would be if they killed each other, and pull a Ugolino and Ruggieri in the ninth circle of Hell (ie, encased in ice, gnawing at each others faces for all eternity).

 

Wed, 11/10/2010 - 13:24 | Link to Comment the rookie cynic
the rookie cynic's picture

Is anyone still worried about deflation? (Serious question)

Wed, 11/10/2010 - 13:30 | Link to Comment Ragnarok
Ragnarok's picture

Inflation in needs, deflation in wants. :)

Wed, 11/10/2010 - 13:36 | Link to Comment Econmike
Econmike's picture

Does that mean deflation in strippers, hookers, and coke?

Wed, 11/10/2010 - 13:38 | Link to Comment Ragnarok
Ragnarok's picture

LOL. Tough one.... 

Wed, 11/10/2010 - 13:43 | Link to Comment Econmike
Econmike's picture

Although some prefer their strippers and hookers inflated.

Wed, 11/10/2010 - 14:51 | Link to Comment TheDriver
TheDriver's picture

Given the unemployment numbers, I'm calling deflation in strippers and hookers, inflation in coke.

Wed, 11/10/2010 - 13:31 | Link to Comment -1Delta
-1Delta's picture

Housing going down.... and that is most of the CPI..

Wed, 11/10/2010 - 13:41 | Link to Comment trgfunds
trgfunds's picture

Let me play the typical ZH thesis.

"Deflation? What's that? Are you sure you don't mean INflation? See, the dollar is being destroyed and people are gonna pay 9 billion dollars for a loaf of bread soon, or something"

All kidding aside here, deflation IS coming. These ramps in commodity prices cannot be passed through. This will lead to margin compression and poor EPS, thus falling stock prices, more unemployment, rinse, repeat. Oil went to 130+ / bbl. It promptly fell flat on it's face. What did we see in real estate? BUY NOW or be priced out forever! Kaboom. Total fake out. The same thing is happening now, but with everything. ALL of these prices will eventually fall drastically. Yes, even precious metals. This is the same classic play they run right as the people who still remembered these things start dying off (IE, 1920's real estate boom sequence following same/similar series of events to what we have today, etc.) People think it'll be different this time. Highly unlikely. Deflationary collapse is imminent. Followed, most likely, by some sort another world war. This is just what they do.

Wed, 11/10/2010 - 13:48 | Link to Comment tmosley
tmosley's picture

You hold dollars and I'll hold gold.  We'll see who is wiping their ass with their savings in three years.

Wed, 11/10/2010 - 14:07 | Link to Comment trgfunds
trgfunds's picture

High five for the typical gold guy response! Backed up by offensive remarks and insults, not facts, history, or data. What an investment thesis! I'm very impressed. You, sir, do whatever it is that makes you feel amazing. I'll refrain from insulting you in return and wish you all the best. Take care.

Wed, 11/10/2010 - 14:44 | Link to Comment redpill
redpill's picture

History?  You want to start talking about the history of fiat currencies when this scale of debasing has occurred in the past?  I don't think you really do.

An ounce of a gold could buy you a very nice outfit, fine leather sandals and belt, and probably enough for a goofy roman leafy thing for your head some 2,000 ago.  Today, an ounce of gold buys you more or less the same; a nice suit, tie, shoes, belt.  Even a goofy hat if you want it.  That, my friend, is history.  Gold's history goes back for thousands of years.  Fiat currency struggles to hang around a few decades.

Realistically we've been in a deflationary cycle for a couple years now, it's just the Fed has printed enough money that it doesn't show up in nominal dollars.  But gold tells the story of the money supply increase.  Most people on this planet intuitively know that TANSTAAFL.

 

Wed, 11/10/2010 - 14:47 | Link to Comment Quantum Nucleonics
Quantum Nucleonics's picture

"Typical gold guy response" aside, your thesis is a logical one.  However, when oil got crushed and earnings collapsed in 2008, it was the bursting of the housing bubble and the resulting liquidity/credit shock that brought prices down.  Commodity prices were not the trigger, they were just along for the ride.

You may be correct that rising commidty prices result in another crash in earnings, IF higher prices can't be passed to consumers.  I think that remains a big "if".  Inflation expectations have a way of cascading through the economy.  Watch the grocer stocks and the various measures of wages and income closely.  If grocers start succeeding in passing along cost increases for staples, you'll likely see that carry through to wages.

Price increases are like a dam breaking... just a trickle, then the whole thing fails.  Airlines are a good example.  One airline will test a price increase, either the rest of the industry holds and that one airline back peddles, or they all raise prices in mass.

Wed, 11/10/2010 - 15:02 | Link to Comment tmosley
tmosley's picture

Hows this for history:  The longest any fiat currency has gone without a currency collapse is 40 years (Yuan China in the 1200's).  We're on year 39.

So yeah, you hold dollars, and I'll hold gold, and we'll see who is wiping their ass with their investment in three years.

Schmuck.

Wed, 11/10/2010 - 13:24 | Link to Comment ietalon
ietalon's picture

They haven't heard of the commodity ETF's that cover

all these investments without going to the futures pits?

I hope they raise the margins all the way up to full

cash payment. It makes no sense to have futures prices

control real physical prices.

Wed, 11/10/2010 - 13:34 | Link to Comment SheepDog-One
SheepDog-One's picture

Thats the basis for all the trouble we got in just extrapolated out to infinity with betting derivatives, insane to have futures prices control present physical prices.

Just more gambling protection for those who bet getting their losses socialized, and gains privatized. 

Raise the margins up to full not only for commodities but equities as well.

Wed, 11/10/2010 - 17:22 | Link to Comment Flyingtrader
Flyingtrader's picture

1. Contango eats ETF's

2. Rasing margin requirements up to "full cash payment" defeats the purpose of the futures market.  I will not pay you full price now for something I do not need now.

3. Futures prices are "real physical prices", in the future.  There is no tail wagging the dog here.

Wed, 11/10/2010 - 13:31 | Link to Comment tunaman4u2
tunaman4u2's picture

Anybody recommend online places to purchase physical silver? APMEX? Any else or better? Thanks so much!

Wed, 11/10/2010 - 13:35 | Link to Comment Ragnarok
Ragnarok's picture

Small or large quantities? More than $10,000?

Wed, 11/10/2010 - 13:39 | Link to Comment redpill
redpill's picture

APMEX is great, but if you can find a local dealer and pay in cash, do that.

 

Wed, 11/10/2010 - 13:41 | Link to Comment tunaman4u2
tunaman4u2's picture

Small quantities <10K 5K about

Wed, 11/10/2010 - 13:37 | Link to Comment Hondo
Hondo's picture

Why weren't they doing this in 2008 when commodities were going through the roof.....smells pretty funny.

Wed, 11/10/2010 - 17:17 | Link to Comment Flyingtrader
Flyingtrader's picture

They did.  The CME adjusts margin requirements all the time. I don't understand why Zerohedge is so worked up about this.

Wed, 11/10/2010 - 13:45 | Link to Comment BeerGoggles
BeerGoggles's picture

Short gold bitchez!

Wed, 11/10/2010 - 13:54 | Link to Comment Gold Man Sucks
Gold Man Sucks's picture

China,one and a half year ago,unknowingly sent a coded signal to the world that the gold bull will run strong and she will play key part in this bull run.Nobody noticed.

Wed, 11/10/2010 - 14:07 | Link to Comment Dagny Taggart
Dagny Taggart's picture

Geez, they stick their wicks in everything, don't they?

Wed, 11/10/2010 - 14:28 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

And what is wrong with forcing investors to pay higher margin requirements? It seems like a good thing to me.

Wed, 11/10/2010 - 14:41 | Link to Comment The Rogue Trader
The Rogue Trader's picture

All that margin increases do is confirm the underlying trend....I have NEVER seen a margin increase change a market's trend....

Wed, 11/10/2010 - 14:53 | Link to Comment Quantum Nucleonics
Quantum Nucleonics's picture

It seems odd that this crowd is upset by margin limits, for precious metals at least.  Higher margin limit leverage.  Isn't less leverage a good thing?

If you believe in a hyper-inflationary future, get used to these margin increases.  Imagine the day when they are adjusted daily, for every traded commodity, then at some point converted to a percentage because the contract size changes so quickly. (seriously, though, you won't see that - end game would preclude it)

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