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Harvest rally

Agriculture.com Staff 10/30/2009 @ 7:00am

Rallies during harvest are rare and are often hard to understand and trade. Harvest is one of those times when supply news items usually overwhelm demand, meaning the market reacts to harvest progress, farmer selling, the volume of elevator pre-hedging, yield reports, stories about grain piles, etc.

So is this harvest rally about supply? This year, yes and no. It is about supply in the sense that supply is delayed. It is also about the quality of the supply-damage and moisture. For farmers with unsold harvested crop, this has meant opportunities-a flat price rally and very tight basis levels.

There is a part of this rally that has nothing to do with traditional grain market fundamentals. The famous 'outside' markets have shown how they can combine with drier forecasts to push the corn, wheat and soybean prices lower. For the first few days this week, the dollar rallied, while crude, gold and the stock market retreated. Thursday, the exact opposite occurred, spurred by a very positive GDP report.

Next week, there will be private estimates of crop size, in advance of the November 10th crop report. The soybean market is especially confused about crop size-early harvest reports show very high yields, but there is yield loss in the Delta. Was the USDA too low with its October crop estimate? Do the two opposing factors balance out?

For the corn, the feeling is that not enough has been harvested to determine whether the USDA was high or low in October. But, on the demand side, the slow pace of corn exports has gotten the market's attention. There is the realization that there are competitors out there-Thai and Brazilian corn and Black Sea feed wheat. Plus high prices the past few weeks have caused buyers to pass on purchases or only buy small amounts.

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.

Rallies during harvest are rare and are often hard to understand and trade. Harvest is one of those times when supply news items usually overwhelm demand, meaning the market reacts to harvest progress, farmer selling, the volume of elevator pre-hedging, yield reports, stories about grain piles, etc.

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