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Wait and see

Agriculture.com Staff 07/20/2006 @ 2:30pm

The markets are in an uncomfortable position this week, as the most severe weather threats appear to be over, but yield potential is still highly variable.

Rain has fallen again this week after the brutal hot temperatures. It's a case of the "haves" and the "have nots" as crop conditions have diverged this week based on rainfall amounts.

This mixed bag of crop conditions means many are taking a "wait and see" attitude until the next weather event and the first crop estimates. Yes, there has been selling, corn futures prices are down almost 20 cents this week. It is hard to maintain prices up at the highs without continued hot forecasts.

It is also hard to make comparisons with last year, since the driest weather is in completely different areas. The Western Corn Belt states of Iowa, Minnesota, Nebraska and South Dakota certainly have more corn acres than Illinois, Indiana and Ohio. But last year, the crop in some of the dry areas surprised people and this could be yet another reason for the recent price break.

Weather forecast aside, the speculative fund community needs to be discussed again. The massive fund long position still exists in corn. Some weeks, there is fund selling and sometimes there is buying. But, as the growing season progresses, there is a question about how the speculators will liquidate these positions. The fund selling that has occurred this week has barely made a dent in the size of the position.

Some contracts may be held no matter how bad the market acts. Remember the concept of the commodity index fund. Buying futures contracts on a variety of commodities, the index fund is always long and simply rolls contracts into deferred months as delivery nears. This means the speculative fund "long" may stay for quite some time and the spreads between nearby prices and more deferred prices may continue to be quite large.

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 markets are in an uncomfortable position this week, as the most severe weather threats appear to be over, but yield potential is still highly variable.

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