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No February price break

Agriculture.com Staff 02/24/2006 @ 9:10am

The 'February Break' has become the 'February Chop' this year. While the historical tendency is for a price break after the first of the year, this year there is decidedly mixed price performance.

Fundamentally, there are good reasons for the lack of a price break. First is the drought in much of the hard red winter wheat area. Also, episodes of dry weather in South America and the buying by speculative index funds have supported prices off and on since the first of the year.

The soybean market may be the only market that feels like it has had a price break. Prices are 60 cents off the highs which were made at the end of December. Rainfall in South America has kept crop concerns confined to very small areas. Unlike last year, the crop is not smaller and smaller with each passing day. As a matter of fact, crop guesses in Brazil still seem to hover at or just below the USDA’s 58.5 million metric ton estimate.

Corn—perhaps the choppiest market—on most days can not divorce itself from wheat. Winter wheat prices have had a sharp rally on weather concerns—a true drought market. Corn seems caught in the middle between wheat and beans, not knowing what to do.

Most of the 20 cent rally in corn prices can be attributed to the $1.00 rally in winter wheat prices. Add in good corn exports the past month and the fascination of speculative traders with corn as an energy price proxy and it’s almost surprising corn prices are not stronger. Of course the current burdensome supply situation really takes the bullish edge off prices. Bullishness in corn is confined to future years, when large increases in industrial use (mainly ethanol) mean drawdowns in carryout unless record crops are grown.

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 'February Break' has become the 'February Chop' this year. While the historical tendency is for a price break after the first of the year, this year there is decidedly mixed price performance.

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Weather Trumps Demand