stjorthotic Chapter 337 Futures and Spot Price Inversion: A Great Opportunity in the Future
Chapter 337 Futures and Spot Price Inversion: A Great Opportunity in the Future
Chapter 337 Futures and Spot Price Inversion: A Great Opportunity in the Future
Chicago’s South Pier is located along the river at 210 South Water Street.
Larry and Matthew arrived at noon. Because the weather was already very hot, they opened their jackets, exposing their chests, and kept fanning themselves to cool off.
The dock was bustling with people, noisy and bustling. Larry spotted the iced beer stall immediately, then pulled Matthew aside, saying they'd have lunch first.
There were no restaurants in a bustling port like Nangang Wharf. Hot dog vendors set up their stalls with wooden crates and shouted their wares along the wharf.
Hot dogs, made with sausage, mustard, and pickles, are a quintessential example of everyday food. Larry and Matthew, each with a beer and a hot dog in each hand, settled down under a shaded area on the dock to eat.
A cool breeze blew in from the Chicago River, and the refreshing aroma of the beer made the two of them thoroughly enjoy their meal.
But the hot dog was still too small. After finishing his meal, Larry patted his belly and still felt unsatisfied.
He wanted to order another hot dog, but then he saw a Chinese man with his braid coiled on top of his head pushing a cart selling chop suey.
The Chinese community in Chicago seemed to be freer than in other places, and the white people at the harbor didn't seem to care that they were walking around selling Chinese food.
"How about a plate of chop suey?" Larry turned to look at Matthew.
But Matthew quickly waved his hand, smiling as he declined, "While I may not be as devout as my brother, I am, after all, a Mormon—"
Larry unceremoniously beckoned to the Chinese vendor and asked for a serving of stir-fried chop suey.
This was a fragrant dish of stir-fried animal offal and various vegetables. Larry smelled the aroma and saw Maillard's reaction as the food sizzled in the wok; memories from his past life flooded back, and his mouth watered.
The Chinese man handed Larry the stir-fried chop suey and said in broken English, "Sir—15 cents, that'll be it!"
Larry smiled and handed him two ten-cent coins, then, while eating with a spoon, asked, "Where are you from?"
"Taishan, China," the Chinese man replied with a smile.
Larry nodded, thinking to himself that he already knew Taishan cuisine was famous overseas. After trying it today, he was convinced that it had a unique flavor.
Taishan was once China's premier hometown of overseas Chinese, especially in the American Midwest, where Taishan natives, through their diligence and solidarity, have deeply settled down in the western United States.
Larry finished the plate of offal quickly and was very satisfied. As he handed the plate back, he asked, "This food is so delicious, you should build a restaurant so everyone can share it."
The Chinese man scratched his head and smiled. "I need to save money, slowly."
Larry laughed and casually inquired, "Do you know someone named Cargill? I heard he has a large warehouse at the South Harbor docks."
The Chinese man nodded and quickly pointed to a row of cylindrical grain silos in the distance, saying to Larry, "There! The third row."
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Larry thanked the Chinese man from Taishan, and then, with Matthew, strolled over to the row of warehouses.
This is a row of medium-sized cylindrical wooden warehouses, fully equipped with anti-mildew and moisture-proof equipment. Next to the warehouses is a small conveyor belt that can transport grain to the dock.
At this moment, the warehouse was piled high with grain, and the cylindrical space looked incredibly cramped. Several warehouse workers were hiding under the awning, smoking pipes.
Larry walked into the shaded area with a smile, meeting the curious gazes of the warehouse workers.
Good afternoon, everyone! I'd like to ask, is this Cargill's grain warehouse?
A worker looked Larry up and down, nodded, and said, "Yes, are you here to buy grain?"
"You could say that," Larry said with a smile, looking around. "Who's in charge here? Is there anyone named Cargill here?"
"Are you looking for our boss? Oh, you're in luck, he happens to be here today." A worker said, calling out "Boss" into the room.
A short while later, a man about five feet ten inches tall walked out from the depths of the pergola.
When he got close to Larry, the man's full figure was revealed. He was very sturdy, slightly overweight, and looked a little tired from years of traveling.
"Sir, what can I do for you?" the man asked Larry.
Larry noticed that the man had a thick brown beard, high cheekbones, and sharp eyes. He was probably in his forties or fifties, wearing a coarse cloth shirt and a pocket watch chain around his neck.
But the man didn't laugh when he spoke; instead, he remained calm, as if he were someone who was born serious and unsmiling.
"Hello, are you Mr. Cargill?" Larry smiled and extended his hand.
"Yes, my name is William Wallace Cargill. I'm the owner of this company."
Larry's eyes lit up, and he asked with a smile, "Oh, that's quite a coincidence, sir. A friend of mine at the Chicago Mercantile Exchange recommended that I try my luck here; I'd like to buy some grain. He said your prices are very fair."
Cargill nodded slightly. "I'm always careful in business. I'll give you a fair price. How many bushels of wheat do you want?"
Larry asked with a smile, "You need to give me a price, right? I'll see if it's suitable. If your price is fair, I can avoid taking delivery of the physical goods instead of the futures."
Cargill nodded and said, "You've come to the right place. The current futures price is very high, it has already risen to $1.08, so our spot price won't rise so wildly."
"So, how much is your wheat worth right now?"
"95 cents a bushel, that's not expensive at all if you're familiar with wheat prices," Cargill said calmly.
Larry was a little surprised by the price, since winter wheat on the Chicago Mercantile Exchange was much more expensive, having already reached $1.12 that morning.
After thinking for a moment, Larry asked, "Your price is indeed very fair. What I'm curious about is why your current price is so much cheaper than the one on the Chicago Mercantile Exchange?"
Cargill said casually, "It's probably because the goods there are mostly spring wheat harvested in September."
Larry knew there must be more to this than met the eye, so he didn't press further and said with a smile, "I heard there's a strike on the Minnesota railroads. How are you still managing to get food from there?"
Cargill responded casually, "This isn't my grain; it belongs to the farmers. I mainly handle purchasing and processing, and for warehousing, I primarily lease my warehouses to farmers."
The sky was killed by this indifferent middle-aged man's chatter!
Larry had never met someone like Cargill before. He was very calm, as if he were wearing a mask, and he didn't even manage a smile.
It's as if he were a born loner.
Larry thought for a moment and said, "Let me put it this way, Mr. Cargill. I'll be frank too. I'm actually a futures trader, here to do research. But I don't rule out buying your wheat, it's just that your product would be best registered as a warehouse receipt."
Cargill frowned and said, "No! I'm selling spot goods here precisely because I don't want to register as a warehouse receipt. I hate speculation; it's a way to get something for nothing, and it even goes against God's instructions."
"Why are you so hostile to speculative trading?" Larry asked.
"I'm not targeting you personally—" Cargill's indifferent face showed a hint of disgust as he slowly said, "I think this kind of hype doesn't help food ultimately reach those who are starving. In a sense, it's a sin!"
Holy crap?! You're going all out right in front of me, aren't you?!
Larry sneered, "So that's how it is. Hoarding farmers' grain and selling it when prices are high is considered being close to God; those who trade futures are merely trading warehouse receipts, never actually holding the grain in their hands, which is sinful!"
Larry's cold words were filled with a scorching, penetrating power. Gargill paused, his expression growing even more grim.
"Sorry, we don't serve speculators like you!" After saying that, Cargill turned around and slowly walked back into the depths of the pavilion.
The atmosphere immediately turned cold. Larry glared inside, then turned and beckoned Matthew to come out.
The two walked straight to the dock area before stopping. Larry hadn't experienced anything like this in a long time, and he sulked alone.
A slight smile appeared on Matthew's lips, revealing that he was still a "teenager".
"You don't need to take it too seriously, my brother. That guy is just a little old-fashioned, not entirely bad," Matthew reassured him.
Larry paused, then chuckled self-deprecatingly. He glanced back at Cargill's warehouse and said with a smile, "At least I'm sure he's not Jewish! He won't take business that's offered to him—stubborn and old-fashioned, he must be a Protestant."
Matthew laughed. "The Midwestern agricultural states are mostly Presbyterian, which are indeed Protestants. They are contradictory; they support the abolitionist movement, but at the same time, they keep pushing for Prohibition—a group of devout believers based on Calvin's reforms."
Larry listened and nodded. "Okay—but there are advantages to being like that. Being rigid means following your conscience, and stubbornness is also a manifestation of responsibility."
Matthew looked at Larry with a strange expression after hearing this. "Your change of heart is too fast! Why? Do you think that just because they're Protestants, you'll feel a natural affinity for them?"
Larry smiled and shook his head. "Huang once told me something. He said that there was a famous commoner emperor in ancient China. He didn't have a distinguished background or formidable military power, but because he had the ability to recognize talent and was willing to appoint people without being bound by trivial matters, he was able to become a legendary monarch who unified China in just a few years."
I am learning from him —
Of course, that's what they say, and one can feign magnanimity while trying to look sophisticated—but Larry still developed a deep aversion to Cargill—
Later, when Larry needed to inquire about grain, he sought out other grain traders.
Larry had many more tricks up his sleeve when dealing with clever, self-important, profit-driven people.
Before long, he had figured out why the spot price and futures price of grain were inverted.
It turns out that the wheat market is indeed somewhat complicated right now. On the one hand, the United States has had bumper harvests for two consecutive years, and not only wheat, but also oats and corn have benefited from this.
On the other hand, Europe, a traditional major buyer of American grain, also experienced a bumper harvest. In particular, the newly developed agricultural areas along the Black Sea coast, where the land was already fertile, saw a dramatic increase in grain production after the adoption of agricultural machinery and new technologies.
This severely hampered U.S. grain exports. As a result, warehouses along the Chicago coast were almost full, because the grain gathered there could no longer be sold to Europe as quickly as before.
However, futures trading is driven by expectations. The massive railway workers' strike, and rumors of mysterious degradation or even crop failure in wheat varieties in some parts of the Midwest, provided an opportunity for speculation and gave wheat futures, which had been stagnant and declining for the past two years, a long-suppressed rebound.
To put it simply, the prices of futures and spot goods are vastly different, and the reason is very simple: the two corresponding prices are fundamentally different things.
One is the actual spot price, while the other is merely a future expectation.
In addition, there's something Larry knows best: in the secondary market, a prolonged price trend can accumulate significant profits.
However, if this trend is broken, the profit-taking, the opportunistic upward movement of the reverse trend, and the Matthew effect generated by these two factors will cause the stock price to rise sharply in a short period of time.
This is what's known as a retaliatory rebound. But such a rebound is just that—a rebound—because the fundamental situation remains unchanged. Once wheat bulls begin to take profits, this upward trend will end.
Before long, this upward trend against the market will disappear without a trace, as if it never happened.
Larry kept asking around about the basic situation of wheat from various grain merchants, while Matthew quickly drew a candlestick chart of grain prices on a piece of scrap paper with a pencil.
After Larry returned and joined him, Matthew proudly displayed his latest charts.
"Here are the charts you need! I've drawn up the daily charts for wheat over the past few months based on the price newsletter."
Larry took the chart, clicking his tongue in admiration, "I never expected you to be so good at this!"
"I draw so many design drafts, this kind of diagram is nothing to me!" Matthew said with a smile.
Larry nodded vigorously.
On the chart, wheat's past downward trend has been very stable. But just a month ago, due to a railway workers' strike and rumors of total crop failure in some areas of hard winter red wheat—
This led many people to start hyping up unexpected news in the market on a large scale.
On the chart, wheat experienced an unusual surge, especially since the previous bottom consolidation was very solid, making this reversal very sharp.
Matthew had already grasped some of the secrets of trading. Pointing to the last section of the chart, he said, "I bet a lot of people have lost everything because of this upward trend."
Larry nodded, seemingly lost in thought.
Matthew glanced at him, knowing Larry was lost in thought, and didn't disturb him.
After a while, Larry said, "What I know, others will know too—so what can I do if I want to make a fuss about something that everyone already knows?"
"Do you still want to catch that guy who's been secretly working against you?" Matthew asked.
"Yes! At least I have to make him show his teeth in front of me, so that it goes from behind the scenes to the forefront!"
"But what should I do?" Larry pondered.
"You can lie to him!" Matthew told a joke with a laugh.
Larry, however, was taken aback for a moment, but then a smile spread across his face.
"Yes! I can," he said.
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