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Keeping cool in a hot market

Agriculture.com Staff 07/18/2008 @ 11:42am

It is not news that markets have been wild this summer. Soybeans and corn made historic highs last month.

The other side of the coin is that commodities which we need to produce those valuable grains have also made new highs. Now grain prices are dropping faster than the prices of inputs. The price of corn at my local elevator dropped $1.47 from the last Friday of June until today. That is a drop of twenty percent in three weeks. My memory is that there have been bigger percentage drops in other high price years, but never as big of a drop in dollars.

The futures price of crude oil has also dropped. The results have not shown up at the pump yet. If futures continue to drop, but the price results are bound to get to the consumer soon. Unfortunately the retail price will probably not drop as fast as grain prices have. Also, it will take a long time before prices for fertilizer and other inputs reflect lower energy prices.

It is tough be cool when prices change so fast. One possible approach to dealing with the current situation is to simply go ahead and sell now. Prices are still high from a historical standpoint. The price quoted today has dropped only enough to take us pack to the levels of early June. The cash prices of both corn and soybeans are still higher than any previous year. A second approach is to wait for a retracement of the move down. Prices almost always bounce back half way to where the recent top was made. Nothing says that they must rebound that much. There is no way to tell where the rebound starts from. Still, the odds of it happening are great enough to make that approach a viable alternative to selling everything immediately.

There is always the possibility that the June highs were not the top of this bull market. Fundamentals that took cash corn over seven dollars at country elevators are still in place. However, the psychology seems to have become much less positive. If the speculative money begins to exit the market, fundamentals will mean little at these price levels. Murphy says "What everyone knows ain’t worth knowing." Everyone knows the demand is great and carry over supplies are low. Those are the factors that took prices to where they were last month. We need some new factor to come into the picture for prices to make new highs.

On the positive side, there is always the possibility of a weather problem yet this summer. Also, the possibility of Asian Soybean Rust. should not be overlooked in deciding how many bushels of soybeans to forward price for the coming harvest. With all of the heat and humidity recently, that could be the factor that excites the markets before the combines roll.

It is not news that markets have been wild this summer. Soybeans and corn made historic highs last month.

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