Published on: 16:21PM Nov 06, 2008
The ag commodities broke from the opening bell. While corn closed under pressure, there was some relief in beans. The reason I would cite for the sharp correction are:
- The continued decline in the equities. With expectation of further bad economic data ahead of us, the investors are getting very nervous as to who in the new administration is going to turn things around. I would not be surprised if the new administration tries to do something very dramatic in the first two weeks of his term. Essentially, outgoing administration is now closing up shop causing the equities to question how bad things will get between now and the first of the year when any new policies can really be implemented.
- The second variable is related to the global economic health expectation. The oil markets broke again hard today and weekly oil statistics were neutral at best. Concern continues to be that demand is imploding but production of supply will not decline as fast as we need to keep from building up domestic and global supplies. As a side note: I guess I don’t have to tell you that the seasonal low for gasoline is normally the December time period. If I were you, I would be working as hard as possible to forward buy inventory product in this time period for your spring needs.
- Final factor affecting producers is harvest is wrapping up and most of the elevators are full. The product is simply not moving fast through the system which is making the last of inventory that must be sold putting a lot of pressure on prices.
While the corn and bean market did break today, I like the way corn and beans held their ground in light of the bearish outside markets. If we get bearish economic data and a bullish reaction in the equities we are set up to bounce back in corn and beans on a neutral to positive November USDA Supply and Demand report on Monday. I would encourage a cautious buying strategy of long calls or covered futures positions in the December corn below $3.76 and January beans below $8.80.
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