5 ms·

Controlled experiment in futures markets: onions

46 points by emmett 18y ago

steveplace 18y ago
This is evidence that speculators are not to blame. If you remove speculators, you remove liquidity. No liquidity, higher volatility, and higher probability of price manipulation (think Enron). It's also worth noting that the distaste for market speculation is inversely proportional to how well the market is doing.
- breck 18y ago
  This is evidence of nothing except that one number looks more volatile than other numbers if you measure that number more frequently. "Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April." I mean, seriously? For oil and corn they compare two points, but for onions they compare October 2006-April 2007, April 2007 - March 2008, and March 2008 - April 2008. I could just as easily look at the change in onion prices between October 2006 and now, and then pick 3 arbitrary dates when oil prices hit extremes, to "prove" how having a futures market makes prices more volatile.
  - steveplace 18y ago
    The selective timeframes showcase the volatility. If a security moves 5 points in a week, and a year later it moves 5 points in a day, it becomes more volatile. Going up 400% in half a year versus 300% in two years is pretty volatile. That being said, they probably use bad stats to dumb it down for the average reader. What you want to look at is the {rolling stDev, average true range, volume} to get a better feel for it. Also, it's happened in other commodities that you can trade contracts on, but they are so thinly traded that they can make really big moves.
    - breck 18y ago
      "Going up 400% in half a year versus 300% in two years is pretty volatile." But for all we know the latter item could have gone up 1,000,000% in the interim and then settled down to 300% at the end of two years.
      - steveplace 18y ago
        Then they would have pointed that out. I agree with your point that it's not the best statistic to show the basis, but the underlying premise remains the same.
coglethorpe 18y ago
An article about the onion and one from The Onion on the front page. I'm in tears.
- pchristensen 18y ago
  "I'm in tears" Puns ftw!
  - deleted 18y ago
    [deleted]
joeread 18y ago
Experiment in statistics: use more than one datapoint.
weiser 18y ago
The lack of transparency in oil futures trading has been a concern for many, not just trading in itself. See http://levin.senate.gov/newsroom/release.cfm?id=257862 http://levin.senate.gov/newsroom/release.cfm?id=257862
- incomethax 18y ago
  High oil prices weren't a problem during the stock bubble of 2001, or even the housing bubble of 2004. The reason that oil prices are skyrocketing, is simply that traders (mostly hedge funds) are putting all their money into commodities instead of, stocks, real estate or bonds. All that regulation will accomplish is forcing the collapse of the commodities bubble, and we'll end up with a bubble elsewhere.
  - swombat 18y ago
    With so many bubbles all the time, I'm starting to feel like the world economy has become some sort of fizzy drink.
  - wallflower 18y ago
    http://www.businessweek.com/lifestyle/content/jul2008/bw2008078_706271.htm?chan=top+news_top+news+index_top+story http://www.businessweek.com/lifestyle/content/jul2008/bw2008...
  - gills 18y ago
    If the Fed would actually do it's job and drain the swamp (remove excess credit from the system), it would help calm the bubbles.
    - bayareaguy 18y ago
      If you agree with this line of thinking: The Great Moderation - http://www.winterspeak.com/2008_07_01_archive.html#1502659962533085800 http://www.winterspeak.com/2008_07_01_archive.html#150265996... then the real issue is relative rates of consumption.
    - 18y ago
byrneseyeview 18y ago
I worked at a wholesale onion company when I was about fifteen, and one of my first questions was why nobody was hedging anything with futures. What actually happened is a little more complicated than the article suggests: the business now attracts people who love that kind of volatility.

46 points by emmett 18y ago

This is evidence that speculators are not to blame. If you remove speculators, you remove liquidity. No liquidity, higher volatility, and higher probability of price manipulation (think Enron). It's also worth noting that the distaste for market speculation is inversely proportional to how well the market is doing.

breck 18y ago
This is evidence of nothing except that one number looks more volatile than other numbers if you measure that number more frequently. "Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April." I mean, seriously? For oil and corn they compare two points, but for onions they compare October 2006-April 2007, April 2007 - March 2008, and March 2008 - April 2008. I could just as easily look at the change in onion prices between October 2006 and now, and then pick 3 arbitrary dates when oil prices hit extremes, to "prove" how having a futures market makes prices more volatile.
- steveplace 18y ago
  The selective timeframes showcase the volatility. If a security moves 5 points in a week, and a year later it moves 5 points in a day, it becomes more volatile. Going up 400% in half a year versus 300% in two years is pretty volatile. That being said, they probably use bad stats to dumb it down for the average reader. What you want to look at is the {rolling stDev, average true range, volume} to get a better feel for it. Also, it's happened in other commodities that you can trade contracts on, but they are so thinly traded that they can make really big moves.
  - breck 18y ago
    "Going up 400% in half a year versus 300% in two years is pretty volatile." But for all we know the latter item could have gone up 1,000,000% in the interim and then settled down to 300% at the end of two years.
    - steveplace 18y ago
      Then they would have pointed that out. I agree with your point that it's not the best statistic to show the basis, but the underlying premise remains the same.

coglethorpe 18y ago

An article about the onion and one from The Onion on the front page. I'm in tears.

pchristensen 18y ago
"I'm in tears" Puns ftw!
- deleted 18y ago
  [deleted]

joeread 18y ago

Experiment in statistics: use more than one datapoint.

weiser 18y ago

The lack of transparency in oil futures trading has been a concern for many, not just trading in itself. See http://levin.senate.gov/newsroom/release.cfm?id=257862 http://levin.senate.gov/newsroom/release.cfm?id=257862

incomethax 18y ago
High oil prices weren't a problem during the stock bubble of 2001, or even the housing bubble of 2004. The reason that oil prices are skyrocketing, is simply that traders (mostly hedge funds) are putting all their money into commodities instead of, stocks, real estate or bonds. All that regulation will accomplish is forcing the collapse of the commodities bubble, and we'll end up with a bubble elsewhere.
- swombat 18y ago
  With so many bubbles all the time, I'm starting to feel like the world economy has become some sort of fizzy drink.
- wallflower 18y ago
  http://www.businessweek.com/lifestyle/content/jul2008/bw2008078_706271.htm?chan=top+news_top+news+index_top+story http://www.businessweek.com/lifestyle/content/jul2008/bw2008...
- gills 18y ago
  If the Fed would actually do it's job and drain the swamp (remove excess credit from the system), it would help calm the bubbles.
  - bayareaguy 18y ago
    If you agree with this line of thinking: The Great Moderation - http://www.winterspeak.com/2008_07_01_archive.html#1502659962533085800 http://www.winterspeak.com/2008_07_01_archive.html#150265996... then the real issue is relative rates of consumption.
  - 18y ago

byrneseyeview 18y ago

I worked at a wholesale onion company when I was about fifteen, and one of my first questions was why nobody was hedging anything with futures. What actually happened is a little more complicated than the article suggests: the business now attracts people who love that kind of volatility.