Monday, November 18, 2013

The Chinese Egg Derivatives Roll Out

From MoneyBeat:
If we were to dream up the perfect commodity to trade as a futures contract, it would probably be durable, non-perishable and subject to regular swings in supply and demand. Being notoriously fragile and perishable, eggs clearly don’t fit the bill on the first two counts, and investors may need some convincing on the third.

But the Dalian Commodity Exchange has moved forward with its plan to launch the exotic derivatives—the Chicago Mercantile Exchange used to carry egg futures but it hasn’t for decades, making China a trendsetter with the new contracts—and after around a week of trade, egg futures haven’t fallen flat, but they haven’t exactly taken off either.

The benchmark May 2014 contract outperformed all other commodity futures on Friday, ending 1.5% higher at 4,013 yuan ($658.53) per 500 kilograms, helped by a rally in China’s stock markets in anticipation of the government’s issuance of a policy document that provided some specifics on economic reforms. Since its debut a week earlier, the contract fell 0.9%.

Despite a moderately successful first week for eggs, some investors aren’t planning to add the futures to their basket of investment instruments.

“I probably won’t do any egg futures because it doesn’t have a seasonality feature that people like me can take advantage of [in] arbitrage trade,” said Jerry Chen, who runs a 10 million-yuan fund with a few of his friends and invests mostly in soyoil, rapeseed oil, and palm oil futures.

Like other agricultural commodities, egg production is cyclical—with supply generally rising in the spring and demand increasing in the summer and fall—but since egg-laying hens are kept in controlled environments, output swings can be modulated better than for crops like soybeans, which are at the mercy of the elements....MORE
We have a more than a passing interest in the ovoid. Previously:

Inflation: Eggs Take Flight
I'm not sure why but this blog has become a repository of egg stories. You might even say we're eggcentric.
The Fabergé  Eggs I understand; eight of them are missing and at $5-10 mil. per, it might actually be worth your time to take an interest in l'oeufs. I'm not sure what's up with the chicken egg stories though.... 
Mix Butter, Onions, Cheese and Eggs. Add Electricity...
For some reason, this post from Freakonomics got me thinking about the Chicago Butter and Egg board, the Butter, Cheese, and Egg Exchange of New York and Title 7, Ch. 1, § 13–1 U.S. Code*:

Lightbulb Moment in Food History

Last week’s post talked about early-20th-century “egg gamblers” who bought eggs cheap in spring in order to sell dear in winter. Their kind of speculation proved not just controversial but also pretty risky, and ultimately doomed. Why?

Egg gamblers won only if they sold off their cold-storage stocks before fresh ones arrived in spring. They faced two major unknowns: housewives who sometimes protested egg “hoarding” with organized boycotts....
Feb. 2012
Five Year Returns: Barley Beats Gold
Over the past 5+ years only one of the Agri-Commodities we follow failed to do better than the S&P 500. That one was eggs. However, to give eggs their due, they serve many useful purposes. Breakfast being one that comes immediately to mind. On the other hand, paper equities apparently provide little of value....MORE
April 2011 
"Chart of the Day: Real Egg Prices, 1890-2011"

March 2013
What came first Egg or Chicken? Solution Through Granger Causality
 I've got a feeling we're going to be talking Granger Causality Tests in the very near future so I might as well start laying (sorry) the groundwork.
Clive Granger was awarded an economics Nobel for his correlation/causation work. Rather a big deal in my world.
(prediction and stuff)
Finally here's a 1927 recording of "Big Butter and Egg Man..." by King Oliver's Creole Jazz Band, featuring Bessie Smith and Louis Armstrong: