Why the Grain Markets are "Limit Down"
Feb 22, 2011
I just wanted to update the producers who are trying to figure out why the Grain Markets are "Limit Down." We started out in the overnights trading higher following crude oil, then a few major events spooked the big boys and we have since broke $0.50 in corn, over $0.80 in soybeans, over $0.70 in wheat and massively in cotton.
It started with several Fund traders becoming extremely nervous and uncertain about the recent political unrest and turmoil in Northern Africa and the Middle East. When traders are uncertain they tend to take risk off the table and move to the sideline. That is exactly what we are seeing in today's trade, and what I wrote about in my morning e-mail. I hope you had the chance to read it.
To add fuel to the fire, I reported that the rumors are the Chinese government will "NOT" reduce soy import tariffs. As expected this may have simply been a strategy by the Chinese to invoke more farmer selling and less hoarding. I doubt we have heard the last of the "tariff" story, but for now it looks to be off the table. Also adding pressure to the grain markets is word out of Russia that they will be selling feed grain at a reduced rate from their intervention stocks. There are some additional comments circulating that Brazils soybean crop may actually come in much higher than expected (closer to 72 or 73 million metric tons).
As for cottons big break I heard the trade had a few merchants caught short the March contract and they couldn't make their cash deliveries against their positions. They were trapped, couldn't roll forward and couldn't deliver. This forced them to bite the bullet late last week and buy back the positions causing the market to run limit-up last week, now the market is correcting in a big bad way.
Until the big boys are more comfortable with the "outside" markets and the uncertainties that are surrounding Northern Africa and the Middle East, risk reduction could be the theme. Nothing has really fundamentally changed within the grain markets themselves, except for the fact the big boys are fearful of what could happen in the Middle East and they want to take their chips off of the table.
Hope you have been following my cash sales recommendations and taking a few shots on the recent rallies. I will not be making any additional cash sales in this environment, rather looking for extreme breaks to re-establish or build longer-term bullish positions. Make sure you are buckled in, this ride could get wild.
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