Published on: 14:09PM Sep 09, 2008
The events in the outside markets continue to take the life blood of the bull from the commodity markets. Now that it looks like Hurrican Ike is going to miss all the oil rigs, the oil market has further retreated today to 103.90 on lead month crude. Granted the dollar dropped a little today but the tone is for higher values. Overall, the outside markets are not suggestive of inflationary pressure. This would imply each commodity now must have an exceptional supply reduction event or an unexpected demand surprise to change the bearish tone of each respective commodity.
You can almost taste the concern by the bulls in that the party may be over for a while and they don’t know if they want to stand and fight or simply get to the sidelines. As I suggested in yesterday’s internet copy, the double formation in the wheat and beans is in jeopardy of being taken out! If we do this, there is a lot of room below the market before we find new technical support.
The problem for the supply bull is this week’s USDA Supply and Demand report has greater odds of increasing rather than decreasing. I have to say the risk of a market wash out between Sept 15 and Oct 15 is much greater than an early frost event rally. The real potential for the bulls I would suggest does not shape up until we get closer to Thanksgiving. This means if you are long and fighting the market you need to really be prepared for some rough water ahead. If your position is too big, now is the time to adjust rather than having the market force you out when you don’t have any cash flow left.
So is the super bull market over? No, it is just taking a break. In fact it may be all of 2009 but just like extremely high prices ration usage and stimulated production; prices at or below the cost of production will reduce production and stimulate usage. The interesting battle for 2009 is going to be cotton prices are now below the marketing loan and at levels not seen since the spring of 2007. So these producers are not going to be excited about expanding acres. The cost of inputs for corn producers has pushed most Midwest producers close to $5 before basis. This implies for many if the December 2009 corn gets below $5.50 one could argue they will be losing money to plant corn. This implies to me either the market rallies next spring or we create an explosive situation in corn and cotton while a very bearish situation for soybeans.
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