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Outside markets swing a big bat

Agriculture.com Staff 05/20/2010 @ 2:26pm

Commodities once again are more linked to the outside markets (crude, stock market, dollar, etc.) than some of their own specific fundamentals. The dollar seemed to be of crucial importance today, given a late break in the US Dollar Index caused corn, wheat and soybeans to rally off the lows and actually close higher.

The European situation is front and center in every trader's mind. Who knew traders and analysts would have Greece on top of their watch list? With this volatile environment half-ay around the world, it is no wonder the concept of the week is reducing risk. This has meant a strong dollar and liquidation of positions in many commodity markets.

There are specific fundamentals which are positive for the grain markets. For example, the soybean market, through basis levels and spread trade, is signaling that the cash market is in need of beans. It may not matter where the beans come from-the US, Brazil or Argentina.

Farmers in South America have been tight holders of their old crop and have benefited from this strategy. The strong dollar (weak local currency) makes beans more valuable. Every so often, farmers in Brazil have rewarded the market with a strong day of sales, but they need to continue.

Chatter about corn exports continues. While no one expects a great surge in old crop exports to China, there is sharp disagreement about whether China will become a large buyer of new-crop corn. There should be more acres of corn this year, although planting is slower than normal due to an earlier period of cold weather. The small old-crop purchases of corn have many wondering if crop problems will cause China to be much more aggressive.

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.

Commodities once again are more linked to the outside markets (crude, stock market, dollar, etc.) than some of their own specific fundamentals. The dollar seemed to be of crucial importance today, given a late break in the US Dollar Index caused corn, wheat and soybeans to rally off the lows and actually close higher.

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