Grains move lower on volatility and dollar strength
Jun 15, 2009
Today is one of those days of agony or ecstasy! The bulls have been taken to the woodshed in almost all commodities. December corn is now 42½ cents off last week’s high, November beans down 68 cents and December wheat is now a full 95 cents off its recent highs.
This all leads one to ask what’s happened? Has the crop gotten that much better? The answer is no. We still have a very important report due out the end of the month. It should show corn acres down at least two million and bean acres up 3 million. This would argue for strength in corn and weakness in beans. In reality, the corn has been actually weaker than beans.
So, why? It’s all to do with the outside markets. I believe we had a lot of new speculators coming into the market betting on the inflation play and they got caught. The margin clerk is working hard now to get accounts balanced, many of the new players are not experienced with margin calls which is leading to unusually long liquidation pressure.
Will the dollar continue to rally? I believe not, maybe a few more days but the 82 level is going to be a stone wall. At the same time the oil market appears to have it a limit at the $72 level even though Opec wants $80 plus.
So what’s the best action? Right now, I continue to believe new crop beans are a sell above $10.50 to $11 range. Old crop beans will continue to be strong into August which will keep the bull spreads alive but frankly it’s going to get very volatile and only the financial strong should remain in the bean spreads. Guys, it’s been a good ride and the party may not be over but it’s going to be simply too erratic to predict for this old farm boy.
In regards to corn, I’ve told many of my brokerage clients that fall lows below $3.80 was going to be very difficult. The recent two-day 42 cent break is more than I was expecting. I imagine there are some who will say seeing last year’s June 16th high recently was time to get out but remember if you are making this assumption it actually made a new high on June 27th. While I don’t like comparing this year to last year because of obvious fundamental differences, I do like the argument we will have one more strong price bounce between the June 29th acreage report and the July USDA Supply and Demand report.
Summary: I will be recommending all speculative clients to buy December corn on project (A) below $4.30 to $4.26.
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