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As Deep Throat said in Watergate, follow the money.
If one or more of the following groups can't make money (or be fooled into
believing they will make money), a futures contract fails:
Hedgers (producers of the "physical"), Consumers (buyers of the "physical"),
Market Makers, Brokers, the Public.
Lack of a tradable contract does not mean that hedging does not take place.
Coal is a good example: The Coal industry is dominated by less than ten
major producers. The consumer group is dominated by large electric
utilities. Both groups are capital intensive with long pay back periods for
their investments. Both groups prefer to conduct business under long term
contracts (usually ten years or longer). So, even though Coal would seem to
be a natural for NYMEX and a fossil fuel contract, every attempt to create a
viable futures contract has failed. Yes, I know they are trying again.
Eggs are another good example. Producers dominate the market (ask Hillary).
Other parties recognized this and the egg contract failed.
Electricity futures are the next potential big contract. There is more
electric energy (dollar value) produced and consumed each year than oil or
gas. There are many producers & consumers. Many market makers and brokers
are now trying to figure out if they want to dive into this market. Recent
volatility due to the heat wave is scaring the daylights out of them. The
truth be told, market makers and brokers do not have a large desire to
become risk takers. They want volatility, but not the potential for price
to move from $30 per megawatt to $7000 per megawatt in a few days of time
(actual numbers from July). It remains to be seem if this contract will
succeed or fail. Its success currently depends on the ability of market
makers and brokers to make consistent money out of it.
Ross Kovacs
> ----------
> From: BrentinUtahsDixie[SMTP:brente@xxxxxxxxxxxx]
> Sent: Saturday, July 25, 1998 11:48 AM
> To: rjb@xxxxxxxxxxxxxxxxxxx; RealTraders Discussion Group
> Subject: Re: cluck cluck
>
> I have wondered why there aren't regularly traded contracts of some things
> like steel or concrete, or maybe gypsum.
>
> Brent
>
> ----------
> > From: Richard <rjb@xxxxxxxxxxxxxxxxxxx>
> > To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> > Subject: cluck cluck
> > Date: Saturday, July 25, 1998 11:33 AM
> >
> > No...seriously.
> >
> > The whole discussion on why markets exist brought a very serious
> question
> > to mind.
> >
> > We have fairly active markets in the areas of beef and pork, but chicken
> is
> > also something a lot of people eat.
> >
> > Yes, I know, there's a contract somewhere for chicken (I think they call
> it
> > "broilers"), but why isn't it traded much?
> >
> > Wouldn't chicken farmers and those who use chickens in production want
> to
> > use forward contracts for hedges? Or is the market too dominated by just
> a
> > few producers? (Perdue and Tyson come to mind)
> >
> > Just something I've been wondering about.
> >
> > -RB
> >
> >
>
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