The tone of the market is changing!
Oct 13, 2009
The bears tried to run the market lower and did early in the day but the bull was not to be denied and prices moved higher. Traders and advisors (like myself) which were encouraged to be strong sellers less than two weeks ago are having great difficulty in selling. What’s changed?
First, we have taken the top off of the corn crop, I continue to suggest 125 million to 250 million bushels. This will keep the crop from getting bigger as we go into the winter.
Second, the tone of the outside markets has changed. Back in August and September the attitude was the economic growth was going to be slow and deflationary pressure was persisting. With the Fed’s strong statement that they supported keeping interest rates at historically low levels its given rise to concern about building inflation. Dovetail this with talk by the Obama administration that a weak dollar would not be fought, along with an attitude that a lot of stimulus money is yet to be released, sets the stage many believe for a 2008 price event when crude oil exploded above $100 and corn and beans were pulled up along the way.
The third thing that’s really adding to the bulls’ confidence is the continued rain and slow harvest conditions. Essentially, the cash market is not being over run with inventory.
So in light of this shift in the fundamental supply/demand situation for corn and beans the technical action has been able to take out critical overhead resistance levels and trigger aggressive short covering due to margin call pressure.
Can we go higher? This is the big question for clients who have unpriced inventory or have hedges in place and is also a serious question for the end user who has not priced inventory.
A modest correction is still better than a 60/40 chance for December corn in the last of October and first of November simply because we still have the lion's share of the crop to harvest but the ability to move December corn below $3.50 and November beans below $9.25 will be very difficult now with the growing inflationary attitude.
For the market to move lower now, you will need the dollar to close above 78, gold below $1,000 and the T-Note below 117, if they do it more than likely it will be considered by the big money as simply a short term correction in an overall bull move up into 2010.
In summary: As sellers we have fought the good fight. If the market is making new highs in corn and beans next week we must start looking to convert futures positions to cash sales or long puts to reduce margin call exposure so we can live to fight another day.
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