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Opportunity to Plan for Weather Rallies

June 24, 2011
 
 

This information is provided by Archer Financial Services, Inc. 800-933-3996.

For the second week in a row, the grain markets faced significant pressure due to overall commodity fund liquidation. This week’s down move was punctuated by a limit down trade on Wednesday. 

Thursday’s trade had an ugly beginning as July corn futures were down another 38¢ before gallantly climbing  back to close higher on the day. Although Thursday’s trade left traders with optimism that a late week recovery could ensue, Friday’s technical selling tied to the lowest weekly close in over three months confirmed an ugly week in the grain markets. 

From late last week to early this week, the trading funds were net sellers of over 62,000 contracts and that was before Wednesday’s selling began! Fundamentally very little has changed. Crop conditions this week showed slight improvement and the weather outlook appears to be mostly favorable for crop development. This would normally limit the upside in the trade or lead to slight weakness. The dramatic sell off that ensued at mid-week was tied to general commodity liquidation. It was rumored that at least two funds had decided to remove their exposure to commodities. Their exit, as well as the technical selling that it created was not very organized, thus the nearly 70¢ crash at mid-week was the result. 

Typically it can be difficult for these markets to regain that upside momentum after such strong technical damage has been done, but it cannot be forgotten that grain stocks remain at historically tight levels as we enter the critical time in the US growing season. The market’s attention has been temporarily diverted, however with the June 30 Stocks and Acreage Report just three trading sessions away, look for the market’s focus to once again shift back to fundamentals. Producers can look to use this weakness to lift some hedge protection and establish an option strategy that may protect future hedges in the event of a weather or demand related rally later this summer.

 

 

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