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Volatility continues

Agriculture.com Staff 04/12/2007 @ 2:23pm

The very beginning of the planting season has highlighted what the price action could be like all through the growing season-volatile. Today's 10-13 cent price range in all three main commodities (corn, wheat and beans) is probably only a sneak preview of summer trading conditions.

To survive as traders, positions may need to be smaller or more options could be used in order to be able to sleep at night and keep from owning a pharmacy's inventory of antacids. To survive as farmers may take intestinal fortitude as well, given the cold snap, snow, rain and price declines of early April.

There has been a lot of discussion regarding the condition of the wheat crop that was hurt by cold weather. Most are forced to wait for sunshine to see the reaction of the wheat. The upcoming snow and rain in the area will not help the evaluation process. What does wheat that is torn up become? It could be corn (if crop insurance will allow, and if inputs can be found) or it could be beans. Of course, there is also simply corn to be replanted due to the freeze and farmers are scrambling for seed.

So the supply news is confusing and varies from day-to-day, according to the weather forecast. On the demand side, the situation is more dismal. Competition from South American soybeans factored into the USDA's decision to shave bushels off of crush and exports, leading to a larger carryout. The changes in the corn carryout were mostly known, although some analysts are working with even larger carryout numbers (reflecting greater reductions in feed use and exports).

There has been discussion this week of China exporting an additional 1-1.5 million metric tons of corn. This is a sharp contrast to the USDA's view on Tuesday's supply/demand tables, where USDA reduced Chinese exports to 3.5 mmt, basically what they had already shipped this crop year. Remember the market has been hearing for some time that China desires to increase its ethanol production, which would trim exports. Perhaps, they are still an export competitor, despite their increasing domestic use.

Monday's planting progress reports will show that progress is a little slow. For early in the season, that will be tolerated. For the weeks following, greater timeliness will be required. Many analysts are using above trendline yields to calculate a preliminary crop size. The USDA will construct supply and demand tables beginning in May. While they did do some estimates for January's Outlook Conference, there is much information to be updated.

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 very beginning of the planting season has highlighted what the price action could be like all through the growing season-volatile. Today's 10-13 cent price range in all three main commodities (corn, wheat and beans) is probably only a sneak preview of summer trading conditions.

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