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Grains fighting bearish outside markets

Agriculture.com Staff 02/07/2016 @ 9:11am

Most commodity markets, especially grains, were in an uptrend during the winter, extending gains further during flooding concerns in May and June.

Since then, markets have made a significant turnaround with prices now sustaining a downtrend. So what was the big change? In late spring/early summer, prices were reflecting a decreasing US dollar value, strong technicals, a flow of fund money into commodities, concerns over crop conditions and, perhaps most important, a significant rally in energy prices.

While in June, if you could have hit a fast forward button to September, you would have seen market forces have turned in the opposite direction. The US dollar reached contract highs this past week. Energy prices, after peaking at $147 on September crude oil futures, have now dropped to just above $100. Crop conditions are probably better than most could have expected, given the significant and historic flooding events that took place in June. Fund money has been gradually and, on some days, rapidly leaving the futures markets. All of this has turned technicals weaker which, in and of themselves, have moved through support areas, triggering sell stop orders, contributing to additional selling pressure.

So now, the obvious question is, how far can markets go down after reaching record high levels? Or, are the markets merely making a correction before their next advance upward?

If looking to the energy markets as the vanguard determining price direction for commodities, there is no shortage of analysts who would suggest that long term unchanged or dwindling supplies will lead to energy spikes. Some suggest a move back to $150 and then $200. This would pull all other commodity markets upward and rejuvenate speculative interest. As for crops, lateness to this year's production could yet mean weather may have a significant impact. Frost before October 1 could be devastating to many producers and tighten already small inventories.

Yet, the reality of the entire commodity movement this year is that nearly a perfect storm of bullish fundamentals came into play at one time. It is unlikely these will be repeated any time soon. A likely future scenario is for high volatility but with prices mostly in range-bound patterns.

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

Most commodity markets, especially grains, were in an uptrend during the winter, extending gains further during flooding concerns in May and June.

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