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Finally, summer grain markets

Agriculture.com Staff 06/15/2006 @ 2:38pm

During the summer, it takes a strong stomach many days to trade grains, with weather forecasts every few hours having the potential to swing prices. But after the winter's obsession with demand, and this year's unusual obsession with outside markets, price swings based on weather are almost easy to handle.

While grain trading started the week with a sharp rally and hot, dry forecasts, prices weakened during the remainder of the week as forecasts contained more and more rain. Sunday night trading may be key again, as market participants will wonder if forecasts have turned into reality.

Besides weather, there was another supply wrinkle in the market today, as there was a private acreage estimate. Many expect a shift in acreage from soybeans to corn in the USDA's June 30th acreage report. The numbers this morning indicate the shift was larger than expected, at approximately 2.5 million acres, versus thoughts of 1-2 million acres. Today's price action (the break in corn and the opposite small rally in soybean prices) shows the price relationships need adjusting.

Meanwhile, the meat markets have zip. The cattle and hog markets have had rallies this week. Hogs in particular have been very strong, with contract highs in many months. There have been comments about fund buying in this commodity, but there are other reasons, too. Hog carcass weights have dropped (two pounds in one week) and are below year-ago figures. Packers have been aggressive in bidding for market-ready hogs and they can afford to, as profit margins have been good.

Pork exports factor into these good margins. For April, exports were the second best ever and almost 16 percent of total production, a record. Small changes in exports can really affect prices. It's an example of basic economic principles, where an increase in demand is met with a price increase, as supply and demand must try to re-balance.

Not everyone feels these export numbers were bullish. The rate of growth in pork exports was more like 20 percent, and April's numbers were only up 2 percent from last year and down 10 percent from March. April hog production was down more, however. In the face of large beef and chicken supplies, some analysts would feel better if the growth rate was better.

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.

During the summer, it takes a strong stomach many days to trade grains, with weather forecasts every few hours having the potential to swing prices. But after the winter's obsession with demand, and this year's unusual obsession with outside markets, price swings based on weather are almost easy to handle.

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