The sharp two-day rally in corn prices seems to have surprised many with its sheer strength. March corn futures have rallied 28 cents (from the absolute low to the absolute high) since 10:30 a.m. Wednesday morning. December futures prices are at their highs, with a 20 cent rally.

Although some believe that "fund rebalancing" has not been completed, the market apparently realized corn prices should not be as low as $3.50. Fund rebalancing is the catchphrase for the idea that index funds are in the process of selling corn futures contracts as they reduce their exposure to that market. In turn, the index funds would buy more contracts of other commodities, in effect reducing the percentage of their portfolios devoted to corn.

Soybeans continue to be dragged around by corn. Prices in this market do not rally higher with as much conviction as corn, due to the very good crops in South America and the substantial US stocks. The problem is the market may be singing a very different tune later this summer and next year. Excess supplies will become adequate or less than adequate, depending on the yield of the 2007 crop. Just like ethanol plant construction, the shifts in soybean acreage are hard for many to understand.

Adding to the anxiety at the very end of the trading day, the e-CBOT system went down. The electronic system has attracted more than half of the March corn volume on a daily basis. At the time of the system failure, March corn futures prices were limit up. The market did break at the end of the day, with a seven cent closing range in March corn. Not only did the pit have to absorb all of the trading volume in the last three or four minutes, but apparently it absorbed fund selling of 14,000 contracts. No wonder the closing range was so 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 sharp two-day rally in corn prices seems to have surprised many with its sheer strength. March corn futures have rallied 28 cents (from the absolute low to the absolute high) since 10:30 a.m. Wednesday morning. December futures prices are at their highs, with a 20 cent rally.