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Mike Adams, Moderator Host, AgriTalk Radio

Risk Management and the New Dynamics of Ag Markets Perspectives from an Exchange, Commercial Participant and Academia. Mike Adams, Moderator Host, AgriTalk Radio. Bryan Durkin Senior Managing Director & Chief Operating Officer CME Group.

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Mike Adams, Moderator Host, AgriTalk Radio

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  1. Risk Management and the New Dynamics of Ag MarketsPerspectives from an Exchange, Commercial Participant and Academia Mike Adams, Moderator Host, AgriTalk Radio

  2. Bryan Durkin Senior Managing Director & Chief Operating Officer CME Group

  3. Market Evolution: Increased Use of Ag Commodities

  4. Market Evolution: State of Futures Markets Average Daily Volume* (contracts in millions) • CME Group futures markets have become increasingly electronic 12.3M contracts 7.3M contracts 1.8M contracts 0.8M contracts 1980s 1990s 2000s 2010s Innovation / Electronification / Demutualization…. Innovation / Diversification / Globalization Highest 88% electronic Averaging 6% privately negotiated/OTC 0% electronic 8% electronic 80% electronic *The average daily volume graphed assumes that CME, CBOT and NYMEX were combined the entire time – with NYMEX data beginning in 1983

  5. Market Evolution: Factors Impacting Food Prices www.cmegroup.com/effectivemarkets

  6. Nourishing ideas. Nourishing people.TM David Baudler President, Cargill AgHorizons

  7. Demand: Rising world population and standard of livingactual and projected

  8. Supply: global food production, area and of yield(grain, rice, major oilseeds) yield +76% area +12%

  9. Global food commodity supply / demand(grain, rice, major oilseeds – bilmt) production consumption 1980-2003 consumption trend extended

  10. World Stocks Source: USDA Includes: Coarse Grains, Wheat, Oil, Rice

  11. US Wheat Stocks vs Price Source: USDA

  12. US Corn Stocks vs Price Source: USDA

  13. Iowa land values$ value per acre Source: Iowa State University

  14. Scott Irwin Laurence J. Norton Chair of Agricultural Marketing University of Illinois

  15. FAO Index of Real Food Commodity Prices,January 1990-May 2012

  16. “The Masters Hypothesis” http://www.nytimes.com/2008/09/11/washington/11speculate.html http://www.loe.org/images/content/080919/Act1.pdf

  17. CBOT Wheat Futures Prices and Index Trader Net Long Positions, January 2004-September 2009

  18. Relationship between CBOT Wheat Returns and Index Trader Net Long Positions, June 2006-December 2009

  19. December 2012 “The current state of knowledge indicates only a few, and weak, findings that verify the assumption that the rise in financial speculation in recent years has increased (1) the level or (2) the volatility of agricultural commodity prices…… Seen in this light, the alarmism about financial speculation should be classified as a false alarm: Those who desire to effectively combat hunger in the world have to take real-economy precautions to ensure that food supplies will match the envisaged increasing demands”

  20. Pricing Function for Storable Commoditiesis Highly Non-Linear Source: Wright (2009)

  21. Structural Changes in Commodity Markets in the Last Decade • Electronic trading • Online discount brokers • Index investment • Exchange-traded funds (ETFs) • High frequency trading (HFTs) • Real-time release of gov’t reports Percent of Futures Volume Transacted on Electronic Platform, 2004-2011

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