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Fundamentals grow in importance

Agriculture.com Staff 05/25/2006 @ 2:12pm

China is apparently testing the waters on corn imports by buying a 50,000 ton shipment. The object of this small purchase is to see how the Chinese government bureaucracy handles the GMO corn.

There is really no indication that China is about to become an immediate purchaser of larger quantities of old crop US corn. The thought is that China would purchase new crop corn, unless perhaps their crop was very large. Besides using corn for feed, the Chinese have also been developing an ethanol industry.

While old-fashioned corn and soybean fundamentals seem to have more of an influence on prices, the reality is that the "outside"markets—metals and energy—continue to play a role. Last Friday (May 19th), for example, the bloodbath was apparent in nearly every market.

But, as the growing season begins, there have been plenty of days where planting progress, rain, acreage, and exports have had more effect on prices. More common may be days where both influences are obvious, like today. Good corn exports, the Chinese story and a bounce from the recent week's price break are all good fundamental reasons for a bounce. A $1.50 rally in crude and a small rally in metals prices may have added to the corn and soybean markets' ability to move higher.

There was a private estimate of acreage out yesterday. This report did show a 1.8 million acre increase for corn, versus the USDA's March numbers. The market may have expected a shift of about that size, but the private estimate may have produced a sigh of relief. It would seem more likely that an 11 billion bushel crop (or more) could be grown. Of course, there is still so much weather ahead, but in the face of growing demand, a large crop is needed in 2006.

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.

China is apparently testing the waters on corn imports by buying a 50,000 ton shipment. The object of this small purchase is to see how the Chinese government bureaucracy handles the GMO corn.

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