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More positive tone

Agriculture.com Staff 12/12/2008 @ 10:33am

The ag markets are acting more like the stock market-and this week, it’s a good thing. The stock market is significantly off its lows. A few times, stocks have even rallied in the face of bad news. Perhaps some sort of psychological corner has been turned.

The USDA released updated supply/demand information Thursday. The corn market had the ugliest dose of bad news, with large demand cuts turning into sharply higher carryouts. Thurday, the corn market rallied in the face of bad news, closing up over nine cents. This reaction shows corn prices may reflect much of the ugly news.

Never underestimate the fact that corn and soybeans still trade like crude oil and also react sharply to moves in the dollar. Today the crude oil is sharply higher (at one point it was up $5.50) and the dollar is sharply lower-definitely reinforcing the positive move in prices.

There has been more discussion of the long term effects of these low crop prices. With strong corn prices, it was assumed corn acres would increase in 2009. Now, that assumption is flying out the window. Costs of planting corn are still high and the corn/soybean price ratio has gradually moved towards beans since the fall. Plus, some of the waterlogged areas of the Corn Belt had very poor corn-on-corn yields. This has caused dissatisfaction with continuous corn.

If the corn market does not have the comfort of more acres, is there a point where a price rally is necessary? A recovery in the economy in 2009 or 2010 would mean increased feed use and increased exports. Plus required ethanol use would increase again. While right at this moment, there is plenty of corn, the future is more uncertain.

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.

The ag markets are acting more like the stock market-and this week, it’s a good thing. The stock market is significantly off its lows. A few times, stocks have even rallied in the face of bad news. Perhaps some sort of psychological corner has been turned.

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