We saw a continuation of the bear market dynamics: CBOT leading the declines ahead of KC and MGEX, and the contango reasserting itself in the wheat futures. The spreads are all highly correlated to the outright price moves. So we all wait to see when in rains in the plain in the Ukraine.
In related investment areas, the MGEX seats have continued to move lower in price--from over $100K at the start of the year to $80K last week. In light of their move to for-profit corporate status and enjoying high volumes and open interest, this seems odd until one checks the price moves of the CME, ICE, and the recent IPO of the CBOE: all are down 13-30% year-to-date. So the decline in MGEX membership values is broadly in line with the declines in other exchange valuations. Personally, I still like owning it.
Lastly, I've been looking at the valuations of exchange-traded farmland MLPs (master limited partnerships) and comparing them to the values in the $180 billion market for listed energy and pipeline MLPs. Oh wait... there aren't any listed farmland MLPs. More on this topic in days to come.
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Back trading today for the first time in over a week and it feels good to be back in the action! Big spread movement today especially in zh.....went home bearspread both zh and hk although not in big size at all.
ReplyDeleteMy family owns a few MGEX seats and I have to say im extremely disapointed in the way Mark Bagan and Company have ran that exchange. Fees are way too high for both members and non members, the so called "liquidity provider" program is absolutely ridiculous....last time I checked you had to do thousands of sides a month in order to qualify for the minimum rebate.
That exchange needs some serious changes if they hope to attract a buyout, IPO, etc. None the less if they hope to even stay in business.
And this is coming from a seat owner...
Looking at the MGEX annual report, it appears that the real estate holdings generate almost all the cash. Neither as a commercial real estate holding nor as a futures exchange does the MGEX benefit from the economies of scale that competitors hold.
ReplyDeleteThe bright side is that the MGEX could be cleanly split and both the real estate and the futures business sold off. My hope is that the change in corporate status is a step in that direction.
I don't see how lowering fees would help the current situation much...
I agree I think they are taking the neccessary steps towards something bigger.
ReplyDeleteThe fees would increase trading volume and liquidity. Theoretically over time in this electronic environment the volume in the wheat contracts should tend to gravitate towards KCBT and MGEX and out of Chicago over time as HRW and HRS have a bigger crop share than SRW. The markets are electronic now, the pits are dead so the market makers will go wherever the liqudity is and the majority should end up at KCBT and MGEX. Before the biggest risk takers where in Chicago so you had the deepest most liquid market in Chicago now they can make markets anywhere.
However at their current fee structure for both members and non members I highly doubt they will be attracting any new liquidity any time soon.