Good weather, weak outside markets weigh on grains 9/1/09

Published on: 17:37PM Sep 01, 2009
Sep 09 Corn
312 ¼    
- 14
Dec 09 Corn
319 ¼ 
- 10 ½
Nov 09 Beans
955 ½
- 24
Dec 09 Wheat
487 ¼
- 11 ½
Dec 09 KC Wheat
510 ¼ 
-10 ½
Dec 09 Min Wheat
521 ¾   
-16 ¼
Dec 09 Meal
- 8.8
Dec 09 Oil
- 0.50

               Corn, soybeans and wheat all closed sharply lower. Soybeans were the downside leaders with September down 86-cents and November down 24-cents. Corn and wheat were also down sharply and both closed at their lowest levels of the year. After last weekend’s frost failed to materialize, the market is now taking out some risk premium. The next two weeks look favorable and without a frost in the forecast, there isn’t a lot of bullish weather to talk about. Old crop soybeans and meal have led the new crop prices higher on this last rally. With soybeans now being harvested in the Delta, few people are willing to pay such high premiums for “old crop” supplies. A very sharp sell-off in the Chinese stock market has sent prices of stock and commodities to sell-off worldwide. The Chinese have pumped billions of dollars into the stock market and commodities markets since the first of the year. The Chinese have not only been stockpiling raw commodities (steel, oil, copper, soybeans, etc.), but billions of dollars have also been “invested” in over-the-counter markets. It is very likely that we are seeing some “forced liquidation” of some of these contracts. The U.S. dollar Index was also sharply higher today. The “short” dollar/ “long” commodities trade is a very popular one. You can barely turn on the T.V. without hearing someone talk about “investing” in commodities because of the falling dollar. Although I agree with this logic overall, I do not agree that all commodities will just continue to rally regardless of fundamentals. In the long run, commodities that are based in U.S. dollars will inflate as/if the U.S. dollar deflates. However, there is a large group of people that are trading commodities based on the day-to-day fluctuations in the price of the U.S. dollar. This can work in the short run, but eventually individual commodities will find the “path of least resistance” regardless of the dollar or the stock market or the crude oil market. There are a lot of “longs” still waiting for a frost before they exit the market. This includes the trader and the farmer. As I have said many times, the market will not wait around until it knows “for sure” that there is not production risk. If you wait until you “know” that you are going to have a good crop before you sell, it will likely be too late. I understand that there is still time to hurt the crop, but that time is quickly eroding away. I just feel like most farmers are going to be “heading for the doors” at the same time this fall. If you are unsold and still convinced that the market is going higher, at least look at getting some downside protection.   This is a good article that I found that talks about soybean yields with cool and wet August weather.  This goes along with what I was talking about yesterday. If we are both right, soybeans have a lot of downside potential this fall.
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