All rallies are not the same
Jun 01, 2012
From The Editor
June 1, 2012
Hello Pro Farmer Members!
It was a short trading week that was long on market action -- and that typically means there was plenty of new "news" for traders to digest. We sum up the major market-movers of the week in the first story in this week's Pro Farmer. Simply put, traders had to balance the price-negatives of Midwest rain and ongoing macro-destruction of the global economy against the risk of a return of hot and dry weather next week.
One of the things that turned one-time big gains in corn and soybeans into a chart disaster by today's close was speculation the National Weather Service 6- to 10-day outlook would cool off a bit and maybe even bring some "good" rains into the southern portions of corn- and soybean-growing country. It didn't. The outlook for June 7-11 still calls for above- to much-above-normal temperatures and below-normal rains.
That doesn't mean the NWS is right. The private forecasters could be right and next week could be a warm, but not hot, with some chances for rain. In fact, I hope the NWS is wrong and the private weather prognosticators get this one right. The NWS 6- to 10-day outlook has been hot and dry most of the week and, while there were some relief from this week's rain, any extended period of hot and dry conditions will put the crops under some significant stress.
I realize some of you won't think that's such a bad thing at this time of the year... make the markets build in a high level of weather premium early in the growing season, then make sales ahead of the traditional pattern shift around July 1. Great plan... wish we could "make" that happen -- especially the part about making the weather pattern shift.
I've been very impressed at the level of demand for 2012-crop corn and soybeans that's already been booked. But, a sharp rally now could threaten the demand base for the year-ahead. It's a little premature to be thinking about the potential impact of a weather-scare corn and soybean rally on the demand base for 2012-13, but I've always been a demand-first kind of analyst. I've always had the attitude that we should grow every bushel of corn and soybeans we can and then find a way (and the price) to use it. That's one reason I'm an ethanol fan. That's one reason I'm a fan of the market-development efforts of the various commodity groups. That's one reason I'm a believer that grain should be held in the bin during a demand-led rally, but sold on a supply-scare rally.
There... that gets to the bottom of it... "sell a supply-scare rally." If you haven't already done so, get ready to do it on the next bump in corn and soybean prices to get caught up with our recommended risk-management positions.
That's it for now...
... have a great weekend!
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