Sharp drops in total call options represent expiration dates.
Open interest is the total number of wheat contracts at any point in time.
DBA tracks grain commodity prices
Open interest spike #1 and #2: Option market makers (OMM) are caught off guard by rally in wheat. They increase open interest 34% keeping prices down through September 2007 expiration date and reposition themselves for rally. When prices soar as OMM buy back the counterfeit supply they flooded the market with.
Open interest spike #9: Again, OMM are caught off guard by rally in wheat. They increase open interest 28% to kill rally in wheat and enlist the aid of the USDA to kill wheat prices with bogus production estimates. With June expiration over now and OMM successfully repositioning themselves, expect USDA numbers to start reflecting reality again and wheat prices to soar.
Nogger reports that, with June expiration safely passed, the USDA getting ready to fix its bogus numbers
(emphasis mine) [my comment]
Thursday, 23 July 2009
USDA - Words Fail Me, Well Almost
The USDA are to revise their June 30th planting estimate for corn in the states of Illinois, Indiana, Kentucky, Missouri, North Dakota, Ohio and Pennsylvania, it has been revealed.
You may recall that the anticipated planting delays that caused a shift away from corn failed to show up in the June 30th report when the USDA shocked the trade by increasing their estimate to a shade over 87 million acres. That was a million acres higher than the highest trade estimate, and almost three million above the average trade guess.
It would appear that they are now concerned that they might have overstated things [Yes, with June option expiration over, the USDA is getting ready to adjust their numbers to reality]. So we are now left in limbo until they issue their revised wild stab in the dark on August 12th.
And surely if the corn number is wrong, doesn't that also mean that the soybean figure is too? But no, they aren't even looking at issuing a revised bean number.
It is bizarre, is it not, that we hang on their every word, eagerly await their every missive. In reality we might as well ask our Alzheimers-riddled Grandad sat stinking of wee and Uncle Joe's Mintballs on his commode in the corner what his opinion is on this year's corn acreage.
And of course the market will react according to the projections of an, at best, misguided bunch of old loons stumbling around in the dark using forty year old technology to guide us.
I wouldn't accept a lift up the road from them, let alone base a trading strategy around what they've got to say. [I share Nogger's opinion about the USDA's competence and honesty.]
My reaction: While all this may be confusing, with terms like "open interest" and "option expiration dates", once you understand these terms, the manipulation of wheat is crystal clear.
1) With June option expiration over, the USDA is getting ready to adjust their numbers to reality.
2) Option market makers use spikes in open interest before expiration dates to reposition themselves, generating profits where they might otherwise have experienced a loss.
3) Volatility increases the prices of options. This is because sharp market swings make investors nervous and willing to pay higher premiums for the insurance provided by options. So the general pattern of spikes in open interest before expiration dates also represents attempts by OMM to milk extra premiums from rattled investors.
4) The manipulation of wheat probably closely resembles the manipulation of other commodities.
Conclusion: Any person with market experience can look at the two charts above and tell that something is seriously wrong with US futures markets.
1) By artificially and drastically increasing supply of wheat futures in the summer of 2007, options market makers delayed the price rise in wheat. When this artificial suppression of wheat ended, wheat prices soared as open interest shrank. If OMM hadn't manipulated the markets in summer of 2007, the rise of wheat prices would have started earlier and would have been more orderly.
2) Option market makers again artificially increased the supply of wheat by 28% before June option expiration. Once option market makers have repositioned themselves and the manipulation ends, wheat prices will soar like they did in 2007.