High Prices May Lead to Volatile Markets

August 26, 2011

The grains continued their steady climb this week, led by the soybean market. The corn market showed signs of running out of aggressive buyers at it nears $8. That was no more pronounced than with the sharply lower trade on Thursday that saw corn slip to its old limit lower level of 30 cents lower, before settling 29 cents lower that day. That break seemed to be mainly technical in nature as a mid-session rally attempt failed and the corn market faced aggressive profit taking ahead of the holiday weekend with few buy orders to slow the collapse.

The corn market found fresh new fundamental information after the close, however, as a commodity brokerage company released a corn yield estimate of 146.3 followed by another estimate from a crop forecaster of 143 bu. per acre. Both estimates are considered bullish by the trade that is likely trading an estimate near 148-149 bu. per acre based on current prices.

Wild swings in the market will not be rare at these historically high price levels. Breaks will be well supported and moves near $7.20-$7 basis, the December futures with vacuums of limited buy orders possibly leading to violent breaks on bearish news.

Look for the market to be well sourced with private trade estimates leading up to the Sept. 12th Supply and Demand report, which will reveal the latest production estimate as well as update any demand destruction that they feel has occurred at these historically high price levels.

(click the charts below to enlarge)

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