Outside markets still impact the grain markets
Oct 16, 2008
The stock market rallied early then failed to hold its gains, broke during mid-session then came back on the close. This action continues to show the overall market’s concern to how deep will the global recession be because of the credit melt down. Other negative factors for grain have been the decline in the crude oil. Today’s weakness has forced the lead month crude close to 70 and natural gas below 7 cents. Overall bias is growing that the decline in oil is reflecting negatively on economic growth.
I have to say corn and beans are not going lower now because of harvest fundamentals. In fact the bin doors are already shutting and farmers are not really selling as reflected by the narrowing of basis in many regions of the country. Additionally, by all traditional measurements the market is reaching a panic oversold level. I’m not saying we can’t go lower but the rate of decline is simply too steep to be maintained, a correction is very close.
Where do we go from here? We know the bin doors are going to shut very tight for three to four months. Unfortunately, this may not be long enough to build any significant recovery. The collective thinking is the first part of 2009 is going to be very weak for the economy, I don’t expect a solid recovery in corn prices much above $5 for corn and $10 for beans at best.
Bottom line: The lower the corn and beans goes short term below the cost of production the greater the supply reduction that will develop which will result in a long term price recovery. My concern is it could be well into 2010 before prices get back to where producers want to sell.
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