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We've got a long way to go

Agriculture.com Staff 11/02/2006 @ 2:54pm

The smaller private estimates of the corn crop have signaled the market that there is more volatility to come. A smaller crop, if confirmed by the USDA next week, means the supply/demand situation will be very tight.

The market has a rationing job to do, so higher prices are necessary until someone's behavior changes. It looks like carryout will be too small without reducing demand.

Plus the market needs corn acres in the future. An estimate that 10 million acres of additional corn will be required has attracted attention. It is not an estimate, however, of how many additional acres will be actually planted. The corn market has a long time to go before it will have a handle on the number of corn acres. Never mind the volatility that will take place next summer as the crop grows.

Soybean prices have rallied as well, but there's not much to say about the soybean market on its own. A large crop in the US, good soybean planting in South America, and good (but not unexpected) demand mean that soybeans are followers. Soybean prices must simply stay in a price relationship with wheat and corn prices to make sure that beans get planted in 2007. A good crop in Argentina and Brazil means there could be an adequate supply of beans even if US acres fall. The market will worry more about the size of the world wheat and corn crops, leaving soybeans as a follower through the next crop year as well.

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 smaller private estimates of the corn crop have signaled the market that there is more volatility to come. A smaller crop, if confirmed by the USDA next week, means the supply/demand situation will be very tight.

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