Many studies of price behavior in commodity futures markets center on determination of the long-term net profits of some class of trader. In most cases the trader whose profits are studied is the long speculator, since in what might be called the traditional view, the principal function of the futures market is to accommodate the stock-carrying short hedger. The profits of the long speculators have been interpreted in at least one theory to be a payment by the hedger to the speculator for the service of bearing risk. As the theory of hedging has been refined, it has proved necessary to modify the details of the basic method of study and to reinterpret the results. But the basic device of attempting to measure the long-term profits of a class of trader persists. This method of analysis is beset with many difficulties, most of which have been only partially resolved. Only traders with large positions are classified in the reports as hedgers or speculators. Some misclassification occurs. The exact timing of purchases and sales is not known, so profits cannot be measured accurately. Much of the apparent net profits which accrue to a class of trader, after suitable assumptions are made to deal with the above difficulties, can be traced to a few episodes of large price movement or to persistent long-run general price inBation, neither of which corresponds nicely to the alleged source of profit. Perhaps the greatest difficulty with the basic method outlined above, at least so it seems to me, is the imputation of a deliberate motive to the ex post realized profit. How can a long speculator insist on, say, a 5 per cent level of profit? He seems to be pictured as saying "I do not know within a dollar what the price will be, but I insist on making a nickel on my trade (on the average)." He seems to come equipped with the proverbial micrometer on the end of a broomstick, and the broomstick's inaccuracy is supposed to be eliminated by averaging over many measurements. The method appears to beg the question of the ability of speculators to predict price, since no average level of profit is interpreted as bad prediction- rather, different levels of profit are interpreted as showing differing levels of avidness to speculate, or different levels of risk-aversion, and prediction is, on the average, exact . This paper is directed in part toward the question of the ability of speculators to predict prices in the egg futures market at the Chicago Mercantile Exchange. The relationship between cash and futures prices of eggs is examined for the eleven-year period ending in 1966, during which almost all of the movement in cash egg prices can be attributed to a 12-month seasonal and a 30-month cyclical pattern. We argue that the cycle, at least for the early part of the period, was exceptionally free of random components and persisted long enough so that cash egg prices were highly predictable. Is there any indication that traders on the egg futures market were able to predict the cycle in cash egg prices? The paper takes two approaches to the question. First, the gross pattern of movement of egg futures prices in relation to cash egg prices is presented. It does not show that speculators have a remarkable degree of ability to predict egg prices. Indeed, the ranges in September egg futures prices are of the same order of magnitude as the 30-month cash egg price cycle, which was presumably the only price variation being predicted (except for the highly predictable seasonal price movements). The second approach to the question of whether speculators were able to predict the cycle in cash egg prices is to look for a sympathetic cycle in the futures prices. Such a sympathetic cycle in futures prices would indicate that speculators had taken a passive, nonpredictive, posture. Spectral estimates for futures prices showed no 30-month cycle and only a trace of the 12-month seasonal price pattern. Perhaps one can conclude that there is at least an attempt at predicting the cyclical fl uctuations. The paper also considers the reasons for the marked decline in the use of the egg futures market in recent years. The cause seems to be the reduced need for short hedging of seasonal inventories, owing to more uniform production at all times of the year.


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