As 2010 comes to a close, it becomes more apparent by the day that the dominant stories of the last half of this year will continue well into 2011. Worldwide grain supply is the chief concern and that story will be dominated by global weather patterns and China's voracious appetite for grains and oilseeds, says Thomas Grisafi, CEO of Indiana Grain Co.
Grisafi, an independent trader from Valparaiso, Ind., says "weather trumped all in 2010." The markets watched questionable weather conditions all year, but news of super genetics and technology in the nation’s seed supply and continuous higher yields in the recent past made the market believe the U.S. crop was invincible. With each USDA report throughout the fall, the market became more and more aware that any amount of technology can’t always outsmart Mother Nature.
With the increases in demand from China, supply concerns are only set to compound. "I saw the news over Christmas that China was raising interest rates. It was like the markets laughed at China and said, ‘whatever. We’re not afraid of the big bad wolf.’"
Much of the talk coming out the trading community right now is that commodities are the place to be, Grisafi says. With that, he expects to see speculative buying coming into the market early in 2011.
Couple the demand and speculative talk with the fact that South America is experiencing dry conditions this year, and all signs are pointing to higher markets, but with significant volatility.
"They’ve committed to selling a large amount of grain to China. USDA and everyone else has them booked and down on paper for growing a pretty decent crop. The way this is working out, people are going to have to start lowering their numbers; both from how much they grow and how much they sold."
So, regardless of market demand, weather is going to be the dominant factor heading into the 2011 growing season, he says. There are weather extremes across the globe and the weather patterns are setting up so that is likely to remain the big story at least through the end of the 2011 growing season.