Dry Weather Induces Grain Price Rally

June 8, 2012 10:43 AM

The following commentary and market charts are provided by Scott Harms of Archer Financial Services.

The grain markets put together a strong performance this week, mainly on the back of strong cash markets and dry weather forecasts.

All markets struggled out of the gate this week with choppy action tied to continuing concerns about the European economic situation. The grain markets found their legs at mid-week as the interior basis levels began to rise once again as merchandisers and end users scramble to procure cash grain supplies. Most importantly, however, weather concerns continue to grow as the center of the Midwest is abnormally dry. In addition, in a surprise policy decision, China cut its interest rates, which led to overnight gains to start Wednesday’s trade.

Corn finished the week $.30-$.50 higher, while soybeans surged over $.80 higher. Grain price rallies likely would have been even larger this week, but for two factors. The European debt situation continues to weigh on traders’ minds and has limited aggressive buying. The other factor limiting an all-out bull market is that, although a significant ridge is in present, it has not yet locked into place. Additionally, although the current weather pattern is quite dry, it has not been accompanied with extreme heat as yet.

The weather forecasters will have the market’s focus next week before giving the stage away for the day on Tuesday to the June USDA World Agricultural Supply and Demand Estimates report. There are several potential surprises that could show up in that report, but none that will overshadow the weather outlook as the week goes on. Dry weather forecasts may very well take new crop corn values toward $5.70 and new crop soybean values near $14 next week, but rallies beyond those levels will be on hold until any production damage can be better quantified. We will be looking to add hedges in both corn and soybeans next week on strength.


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