What 7 Factors Caused the Grain Rally?

June 17, 2016 12:00 PM

The last few days have been extremely volatile for the grain markets, but it’s hard to ignore the steady climb inn prices during the last few months. What caused that prolonged rally? “AgDay TV” host Clinton Griffiths caught up with market analyst Bryan Doherty of Stewart-Peterson to get his take on the situation. There are a number of reasons the market rallied as much as it did, according to Doherty.

1. Wacky weather in South America. Argentina and Brazil have seen their share of poor weather for crops. Doherty says one of the first factors to wake the grain market from its bearish sleep was decreased corn and soybean production in Brazil as well as pressured production in Argentina because of weather. “That got the ball rolling,” he said.

2. Money movement by the funds. Money has changed hands really quickly during the start of the rally, and throughout it, according to Doherty. He says the funds went from record short in corn and heavy short in soybeans to “massively” long in soybeans. Soybeans are now sitting at their highest level in two or three years.

3. China. China continues to be a factor in the market, given just much is unknown about their corn stocks. “How much corn does China really have and what does it look like?” Doherty asked. China could have a lot of corn, he added, but there’s also a chance the quality isn’t that great and the country may need to  buy U.S. corn to blend with the Chinese corn.

4. Accelerated exports in the U.S.

5. Technical buying, short covering.

6. Good global economic conditions.

7. Stock market near its high.

What should you pay attention to now?

Doherty recommends farms keep an eye on money flow on a weekly basis. What are traders doing? Are they adding to or reducing their positions? He also suggested farmers watch the long-range weather forecast, although he anticipates the weather to be average for the rest of the season.

“It’s the middle of June,” Doherty said. “There’s no way we could factor in a disaster, and there’s no way we could factor in a record crop. I would lean toward average to above-average crops until proven otherwise.”

Watch the full interview below:

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