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Outside markets push grain prices

Agriculture.com Staff 04/21/2006 @ 7:56am

By now, the story of more and more mainstream investors getting involved in commodities is old news. But these new participants, and the massive amount of money they have invested, continue to affect prices.

For those who doubt the relationship between CBOT grain prices and the red hot metals and energy markets, yesterday was a day that proves the connection. Starting Wednesday night, silver prices were lower after setting new contract highs for the fourth day in a row. Thursday morning, the plunge continued and gold and crude oil joined in.

Corn and soybean futures prices also opened lower than anticipated. At one time, corn prices were down 5 cents and soybean prices were down 7 cents. Later in the morning, prices did rally back to steady, but couldn't divorce themselves from the outside markets completely and closed 2 1/2 cents lower for both corn and beans.

By the end of the trading day, the commodities that had started the move lower-silver and gold-had suffered the most. In round dollars, the approximately $2.00 drop in silver prices is $10,000 per COMEX futures contract. Energy contracts finished slightly lower, but definitely off their lows.

Lessons? While there are days actual grain fundamentals are important factors, there are also plenty of days where outside markets are dominant. The inflation theme continues. It is not that market participants expect rampant inflation. But world events and the uncertainty of the financial markets have caused the thought that an inflation hedge (commodities) should be a part of many investors' portfolios. No one knows what will happen if these investments lose favor. It's an environment where a very broad perspective is necessary.

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.

By now, the story of more and more mainstream investors getting involved in commodities is old news. But these new participants, and the massive amount of money they have invested, continue to affect prices.

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