How the "Outsides" Are Pressuring Prices, Demand
Sep 01, 2011
In the last few days, the trade has seemed excited in regards to the Fed notes (minutes) form their August meeting. I urge you to be cautious buying into the somewhat misleading facts that the press has been running with. Everyone continues to think the Fed is guaranteeing that they will keep rates "exceptionally low" at least through 2013. The fact however remains, that they actually expects economic conditions to remain weak enough to warrant low fed funds rate through 2013...big difference! More rhetoric that seemed to exit the trade was that "A few members felt that recent economic developments justified a more substantial move at this meeting..." Interpreted as QE3 was discussed and actually suggested by a few members. Just remember, If they had any hidden "bazookas" or "cannons" left in their arsenal they would have already used them, my guess is they are left with just a "Daisy Rider BB Gun."
In a slightly longer-term perspective, I believe that once we get through month-end rebalancing, "money flow" will soon start to become concerned about the upcoming European bailout vote taking place in Germany. Since the "bailout" agreement was announced last month, German voters and legislators have raised their voices against Chancellor Angela Merkel and her administration. Challenges from within her party now threaten to undermine her entire coalition. According to insider reports, 23 members of the center-right coalition are set to vote against the bailout, many from within Merkel's own "Christian Democratic Union." The bottom line is that those in Germany seek more, rather than less control over eurozone funds and currency. A bailout agreement was set forward on July 21st, and since that time the EU and IMF leaders have been calling for Germany's support. A delay in Germany support will work against their goals, and could ultimately put Greece's fragile economy even further at risk. As of right now, the critical vote is scheduled for September 23rd, but there is talk it could be delayed out to September 29th.
From my perspective, with the funds long close to 400,000 contracts of corn already, and many large players still very concerned about the US, European and Chinese economies, there may be some apprehension on their behalf to add more length at this juncture, or at least until more "unknowns" are answered. With this being the case outright long positions may prove to be extremely volatile and hard to manage, during the coming sessions. Bull spreads and Bull-Call spreads might actually be a much safer venture at these extreme levels. "Producers" who still have new crop soybean bushels to sell may find it more advantageous to use "Bear" spreads in the futures markets to hedge their price risk, rather than making cash sales at the current time.
Bottom-line, my fear is not the current "fundamental" outlook for corn or soybeans, my fear is what type of investment "potential" the big money players believe to be left in the corn market. With talk that demand could completely fizzle out at....
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