Look! Something New To Spoof

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Thom Thompson

Thom Thompson

Editor

Every month PanXchange publishes some of the summary data they have calculated from hemp trading, collected from their trading platform and reported to them by market contacts. In addition to the indications of the ongoing weakness in many hemp prices, the June Benchmark & Analysis carried a report about what can be taken as a sign of the growing sophistication of the hemp marketplace: Hemp traders are spoofing! (Maybe not a good thing.)

Spoofing is the practice of publishing orders in a market that the spoofer does not actually intend to have filled but does intend to affect market dynamics in order to improve the price at which the spoofer actually buys or sells. If you are buying a product, you publish a large sell order into the market hoping it demoralizes competitive (true) sellers into lowering their offer prices. And then the buyer simply buys at a lowered offer price while wriggling out of his own spoofing offer if anyone tries to interact with it. 

Certain features of the current hemp market structure seem to enable this. As PanXchange points out, “The market is physical only, trade data are opaque, prices and margins are tight across the supply chain, and gross oversupply of raw material is a common assumption in the marketplace.” 

John Lothian News published a special report on spoofing in the futures industry last year which highlighted spoofing as an artifact of today’s electronic markets. You can read the report here. Before electronic trading anonymized the market participants, spoofing was policed naturally in the trading pits because a trader who was caught in a bluff could be forced to make good on the order.    

PanXchange decries the demoralizing effect spoofing is having, especially on suppliers who are pressured into selling “while worrying about rumored stockpiles flooding into the market and pushing prices lower.” 

As shown in JLN’s report, spoofing has become big business for regulators, regulatory software providers, market experts and law firms. I am no lawyer myself, but it seems to me that spoofing in any commodity market would be illegal under the U.S. commodities laws since it would constitute fraud or manipulation.

In other hemp news . . .

PanXchange reports that there has been some price improvement for both CBD-oriented biomass and hemp grain over the past month. The improvement in biomass pricing appears to derive from the fact that it is getting more difficult to purchase biomass where the cannabinoids have not degraded. Prices for CBD distillates and extracts were mostly lower.

Hemp grain price improvement may be attributable in part to continued strength in the prices for traditional grains and oilseeds. International demand, especially out of China, for both soybeans and corn has kept their prices high on the domestic market for at least the past nine months. The USDA expects foreign demand for the 2021 harvests of wheat, sorghum, corn and soybeans to be maintained at close to the current levels, supporting local demand for hemp grain.

The feeding of hemp grain to animals in the human food chain still requires USDA approval. As mentioned in earlier articles in this newsletter, hemp is currently being evaluated by the agency for its effects in animal nutrition. More significantly, the USDA is also looking at the extent to which cannabinoids contained in grain fed to livestock and poultry are contained in the meat, dairy, eggs and other products consumed by humans. While some studies have shown beneficial enrichment of the fatty acids in eggs from hemp-fed chickens, notably, the levels of THC, CBD and other compounds that make it into an omelette have not been measured.   

Photo by Jeff W on Unsplash.com 

 

 

 

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The Spread – July 30, 2021

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The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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