Rude awakening for the bulls!
Jul 14, 2008
The bulls woke up to a rude wake up call! After a neutral-to-bearish USDA Supply and Demand report with a positive reaction, the bulls were feeling very comfortable on Friday’s close. Most of the argument for higher values was based upon the weakness in the dollar, strength in crude oil, and seasonal expectation of heat moving into the market to reduce yields.
Well, the market is getting what it wants in regard to the dollar weakness because of the growing financial mess of the banking industry. The crude was firm but gave up ground on concern that the economy and subsequent demand could be under pressure as the decline in equity stocks continue. The factor that the trade missed the worse was weather. The rains came but the heat is not coming in as badly as we need it to really decline crop size. With the sharp downtrend in beans today it allowed corn to close below technical support which has triggered aggressive long liquidation and some speculative selling. You know the drill, doom and gloom is now very much the state of mind of many clients holding long futures or cash positions. Granted it’s negative now but I still believe overall corn has a good chance of price recovery this winter while beans should see their best case on any summer problems if they develop.
So what’s ahead? As I said back in mid-June when the crop gets big enough to hide the ponds and unevenness of the crop from the road it’s going to be hard for the bulls to keep the market in trend. My expectation is we will find technical support by the end of the month and the market from August to October could essentially be sideways. The trend followers will be frustrated but the essential sideways market will be great for short-term traders.
What’s the impact on strategy? The critical question is what changes in crop mix should one be considering for 2009 to reduce ones over all risk. I want to increase bean production to the maximum for 2009 beans above $15 and if a price event occurs in the winter or spring of 2009, aggressively sell 2010 corn. I will be talking a lot about this in our upcoming seminar in August, essentially technique and risk, give us a call if you are interested at 1-800-832-1488.
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