Has the ship sailed on corn and soybeans?

July 21, 2008 07:00 PM
Momentum is a very powerful force in commodity markets. Traders who tried to pick tops in corn and soybeans on the way up were chewed up and spit out by the market on a near daily basis. Now, however, momentum has shifted and bears have control. That means traders trying to pick a bottom will likely face short-term struggles -- until momentum shifts again.


Today's featured question:

Did I miss the boat on making corn and soybean sales? It feels like I've let a golden opportunity get away even though my crop doesn't look very promising.


My response:

To get straight to the point, corn and soybean futures are likely to face more near-term pressure as bears have momentum on their side. So, from a very short-term perspective, the ship is sailing. But prices will likely rally again at some point. The old adage is that the market gives everyone two chances to be wrong.

There are several reasons behind the sudden drop in corn and soybean prices, with the primary two being improved crop ratings and the sharp plunge in crude oil from its all-time highs.

As for crop conditions, traders have two things they look at -- how crop conditions have reacted and the weather outlook -- until they start to get actual survey data from USDA. Since bottoming the week ended June 8, crop condition ratings for both corn and soybeans have improved over the last five weeks. While improved weather hasn't cured all that ails the crops after a rough start, traders see improvement. And the weather outlook is without oppressive heat. Given the plentiful soil moisture profile across the Corn Belt, it would take an extended period of very hot temps (likely mid-90s and up) for traders to get too concerned with the condition of the crop. That could change when USDA releases their first survey-based look at the corn and soybean crops Aug. 12, but until then, the perception is that conditions are improving -- which they are.

The impact from crude oil is potentially more damaging. The surge in crude oil futures has driven a lot of speculative money into commodities over the last seven years, especially the last three. Speculators who thought trading commodities was "easy" money are suddenly now facing losing positions. If that shifts speculative money out of commodities and back into the stock market, it takes away one source of support both corn and soybeans have enjoyed.

With that being said, fundamentals (supply and demand) will be the primary determinant for corn and soybean prices over the long haul. If you need to make cash sales near-term because of cash-flow issues, storage issues, whatever the case may be, understand that prices are likely to slide near-term. If you don't need to make sales and can weather the storm, prices are likely to eventually bounce back. While corn and beans likely face more short-term pressure, the long-term fundamental outlook for both markets is strong. And an acreage battle is very likely again for 2009-crop.


Drop me an email at bgrete@profarmer.com and your marketing questions will be answered.

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