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Defensive prices

Agriculture.com Staff 07/20/2007 @ 12:04pm

The sound the corn or soybean market makes after rain in mid-July is about the same sound as a rock falling off a roof and hitting the ground.

Prices crashed over the last three weeks in corn and this week in beans. There have been a variety of elements to the drop, but the primary reason is weather. Timely rains throughout big portions of the Midwest and continued rains in high yielding areas have prices on the defensive.

Soybean prices, which peaked on July 13 at 9.49-1/2 November, quickly retreated and dropped to a low of 8.55-1/2, or just under $1 in two sessions. Since then, prices have consolidated. Corn, on the other hand, continues its magnificent slide after peaking on June 18 at 4.31 December and has now bottomed as of this writing at 3.31-1/2.

Surprising? No. A fast drop in grain markets from high prices is usually the case in mid-summer, especially if the rally is on the heels of dry weather concerns. Once the concern or perception is alleviated, prices seem to drop out of sight as end users back away from the market and speculators jump out of long positions. Buyers then wait on the sidelines for better opportunities.

This year's drop has been painfully disappointing for producers, who in mid to late June were anticipating that corn futures might try to breach $4.50 and then make a move to the 1996 high of $5.54. Drying conditions in the eastern Corn Belt warranted concern, but after timely rains fell for big portions of the east as well as the central Midwest, prices then quickly turned south, anticipating better yield potential. In addition, the USDA then followed up with reports, increasing acreage more than anticipated, and reducing feed usage and exports.

Bottom-line, volatility is here, and this year's market activity exemplifies perhaps what is yet to come in future years. As world demand continues to grow, the need for big crops yearly will also increase. Therefore, while the recent sell-off may be a disappointment for producers, it is also an opportunity for end users. It is likely that the harder prices drop now, the more rapid the rally later.

If you have any questions or comments, please contact Top Farmer at 1-800-TOP- FARM, ext. 129.

The sound the corn or soybean market makes after rain in mid-July is about the same sound as a rock falling off a roof and hitting the ground.

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