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Downdraft

Agriculture.com Staff 03/22/2008 @ 3:09pm

Speculators-you love 'em when the market is going up, hate 'em when the market is going down!

In response to the weak dollar and generally positive commodity markets, many speculators and hedge funds bought a wide range of commodities. The most likely, considering the weak dollar and volatile financial markets, were gold and crude oil. Other possibilities included wheat, corn, soybean oil and soybeans.

This past week saw a sharp change in attitude, propelled by the actions of the Federal Reserve. The Fed's actions sent the US dollar higher, causing a liquidation of many of these recent commodities investments. In two days, gold was down $85 (8.5%), silver was down $3 (15%) and crude oil was down $9 (8%). It was a definite change to some of the basic financial fundamentals.

Now add in weakness in the Chinese domestic soy oil market, plus wash-outs or defaults on Chinese soy oil and bean purchases. It all creates a recipe for a sharp decline in the soy complex, corn and wheat.

Meanwhile, the market has had some decent export news (good export sales, good export inspections, plus a wheat sale to Egypt). Acreage projections for 2008 have been hitting the market with no reaction. While Texas corn planting is about on schedule, many other southern states are slower than last year due to cold, wet weather.

In the next two weeks, the market will have quite a bit to deal with-acreage, stocks, quarterly hogs and pigs, more export reports. If the big wave of liquidation subsides, it will be interested to see how prices react to agricultural fundamentals.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

Speculators-you love 'em when the market is going up, hate 'em when the market is going down!

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