Market Unknowns Could Awaken Bears

July 8, 2016 12:00 PM

The markets are on the move. While corn and soybean prices were up on Friday,  Pro Farmer's Chip Flory and Brian Grete say there are five reasons, including weather, the grains have been so bearish recently. “This is really the result of a perfect storm,” Grete says.

1. Weather. Undoubtedly weather is top of mind for farmers and traders alike as corn enters, and continues in some areas, pollination. The forecast looks relatively favorable, according to Flory. “The dry areas, for the most part, got rain over the weekend,” Grete adds. On the soybean front, it’s a little too early to blame weather for the downward dive.

2. Fund Exiting. According to Grete, the funds were heavily long in corn and soybeans and are getting out of the market. “The funds that were heavily long are in full liquidation mode,” he says. “[They are] running for the exits as fast as they can.” Soybeans led the rally up, but corn is leading the market down. “The funds are fairly friendly for soybeans right now,” he says.

3. Time of Year. Flory says it’s common for there to be market uncertainty at this time of year while there’s little known about potential yield.  “We don’t have enough clarity on the August forecast yet,” Grete agrees. “Now is the go-time for the corn crop: It’s pollinating or starting to pollinate. August is when the focus turns to weather for soybeans.”

4. Crop Conditions. For the most part, crop conditions are relatively strong compared to a year ago. “Traders are convinced it’s a big crop,” Grete says. A big crop, combined with huge estimated carryout, is bearish news for the markets.  

5. Global Uncertainty. “There’s still quite a bit of global uncertainty,” Grete says. While many analysts thought the Brexit vote only might affect markets for a short time, Grete says it is on the list of bearish factors impacting the market, thanks to the unexpected decision by  Britain to leave the European Union.

How Can We Stop The Bleeding?

“We need something bullish to happen,” Flory says. “It’s probably external, but maybe weather.” Grete adds that while the forecasts look favorable, they do include heat. “If the rains don’t come, maybe we stop the funds from exiting, and they return to their long position,” he says.

The bottom line, according to Flory: “We’ve got to keep our eye on the weather yet, but there’s a lot of moving parts out there," he says.

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