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The perfect storm (not Fay)

Agriculture.com Staff 08/22/2008 @ 1:29pm

Thursday's trade is a perfect example of just how the grain market fundamentals are influenced by the old standbys (rainfall forecast) plus the new wider world factors (the price of crude).

The break in the markets before the August crop report made many market participants jittery but did not kill off interest in a wide variety of commodities. So a sharp break in the dollar and a sharp rally in the crude oil market (up over $5.00) put a little extra zest in corn and soy prices today.

Of course, supply and demand fundamentals are reflected in the market Thursday as well. It's dry in several places. Tropical Storm Fay has defied many forecasts and is still wandering down in Florida. It is forecast to move west. Since it is staying so far south, not much moisture is forecast to come up into the Corn Belt. The chance of widespread crop finishing rains seems to be dwindling.

Going forward, the supply issues may continue to occupy center stage for the next few weeks. While demand got pinched at the top end of the price range in June and July, demand at these prices does not appear to be severely rationed. So the market will be worried about crop size, frost, lack of nitrogen, diseases, rainfall, etc. until the combines provide the supply answer.

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.

Thursday's trade is a perfect example of just how the grain market fundamentals are influenced by the old standbys (rainfall forecast) plus the new wider world factors (the price of crude).

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