Why the Funds are Exiting Corn and Beans
Feb 24, 2011
Why Corn & Soybean Prices Are Not Moving Higher
I wanted to take a quick second and help the producers understand why Corn and Soybean prices are not moving higher with Crude Oil.
What is happening is the large traders are obviously fearful that the political unrest in the Middle East and Northern Africa could eventually spill into some of the more prominent oil producing OPEC Nations causing crude oil production to slow or in some cases even be halted. As traders become more nervous of such an event becoming a reality crude oil prices continue to push higher.
The big boys are taking that one step further and are worried that rising crude oil costs could potentially hit the global economies like a ton of bricks (very similar to 2008), throwing several of the world's leading economies into a massive tailspin.
The fear is that we could eventually see a rally similar to that of when Iraq invaded Kuwait. A rally of that magnitude would push crude oil prices towards $200 a barrel, leaving US consumers to deal with $5-$6 per gallon gasoline. You do not need me to tell you what that would do to our economy or the other leading economies in the world. Consumers would once again hunker down as a majority of their expendable cash would be going into their gas tanks.
Understand this, if the economies falter, demand will come to an immediate halt, and the big commodity party will once again be over. Do I think this will happen? No, but it doesn't have to happen to become a real reality. If traders think for a minute that Saudi Arabia or Iran's crude oil production could be shut down or is in jeopardy the price of oil will skyrocket causing their worst fears to become a reality.
Unfortunately for you and I it could turn our worst fears into a reality as well. If the funds get worried about the global economies, and whether or not they will be able to handle the weight of $150 crude oil, you can rest assured we will be in for a massive set-back in grain and livestock prices as the big boys take the "risk" trade off the board.
I love the grain story more than anyone, and I remain bullish, but if things don't simmer down quickly in the Middle East it may be a long road back to new highs.
Make sure you are receiving my daily e-mail and all of my market commentary. We have been rewarding the rallies with some small cash sales along the way and have thrown out some strategies you can use to protect yourself. Keep working with your advisors to have at least a small portion of your "new crop" protected. These prices are just too good and the markets are too volatile right now not to be following a good plan.
If you are not getting my free report make sure you get singed up by following the link below. I will also be hosting a Special 1-Day Marketing Seminar in Kansas City on Saturday March 19th. If you are interested in attending please call our office for specific details and to reserve a seat (816) 322-5300.