Hi KC,

What a great post, nice work.

First off, let me say, I have NO PROBLEM with anyone using ANYTHING that works for them or brings confidence to their trading. I am NOT the arbiter of what is what in trading. I view our job as two fold. One, the share with you what works for us in sufficient detail you can understand it and see if you can make it work for you. The second is to try our best to shine a light on concepts, theories, etc in such a way that you can understand them completely, or as completely as we can manage to explain them. The goal being giving you a chance to fairly and accurately assess what they purport to tell you and what they are truly saying and based upon and where the warts are.

Some responses to consider ...

You posted, "... It seems that would cause Commercial OI to be sort of flat(producers selling and processors buying). I'm guessing that the ratio of producers to processors in the Commercial OI is relative to the price. In the grain COT charts I posted, with the commercial's running opposite of the price, it seems they'd be losing a whole lot of money."

Producers and processors are rarely, if ever, in the market at the same time. The current price is the basis for their actuarial decisions. What do we currently see? Commercials net long, right. Where is the current price? Very low levels right? Who benefits from low prices? The processors, right? Right. If Corn rises from here who suffers? The processors do. So they would be buying at this level thus protecting their SHORT CASH position. Would producers be buying in here? Probably not. They are LONG CASH, so buying only adds to their risk. Look at the net position of the Comercials back in June/July when prices were way up there ... huge net short, right? You think any users were active in the market there? NO. They certainly would be rooting for lower prices but would they short there? No, that only adds to the risk of their SHORT CASH position. But producers looking to lock in the high prices surely were shorting at that level. They rarely balance each other. There will almost always be either net way short when prices are high or way net long when prices are low. Because of the leverage available in our markets the dollars at risk by virtue of the Commercial net position always being opposite the current price is miniscule compared to the impact of the cash position.

You wrote "... With the price of grains right now, if you were a producer, why would you sell at such a low price?(bills to pay, maybe?) If you were a processor, wouldn't you want to buy every grain of wheat and kernel of corn you could get your hands on at this price?(storage problems, maybe?)."

The answer is very complex, a producer would NOT sell right now left to his own devices. But, he may have a forward sale contract with an elevator or even a processor for his crop or a portion of it at a price not related to either current cash or futures price. He may hold some back for later sale. We also have a factor called BASIS to consider in the equation. If he hedged his currently harvested crop back in June/July, selling now would be painless because he has a bunch of short contracts from 3.30/3.20. See it? The converse ... of course you want to buy every kernel of grain right now at these prices. But, you're right, you got to store it, insure it, maintain it, ship it, finance it ... much easier to just get long a bunch of future contracts. Remember, It costs 2.07 a bushel for corn right now so 5000 bushels will cost me $10,350 plus all those items above. I can control 5000 bushels via a futures contract today for what? Well, lets assume Corn COULD drop another 50 cents. So, I might have to work thru a paper loss of $2500 per contract ... even if it went there and stayed there, $2500 per is a drop in the bucket compared to what I save when I go to buy my Spring requirements of Corn for making my corn flakes. Plus, I get to write off the cost of my hedge on my taxes. See it? They got it pretty good, KC, I wouldn't worry 'bout those guys too much ... lol.

It is always very interesting to watch the push-pull, yin-yang of the markets. Deriving info useful and beneficial to our trading is an entirely different matter. It's all in the prices already. That said, I go back to my opening comments ... if you understand it, don't attribute power to it, it does not really possess, but it works and makes you comfortable ... you use it. The key to the use of any tool is to be consistent. Decide how it will be used and then do it that way each and every trade. Profit will still only come from your management regime.