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A re-adjustment week

04/05/2013 @ 8:06am

Last Thursday’s sharply lower trade, caused by the Grain Stocks report, continues this week, aided by new cases of bird flu in China.  The Chinese were already skittish about meat with the stories of dead pigs in a river near Shanghai.  Now there are 5 deaths due to bird flu. Although it does not appear that there is human-to-human transmission of this particular flu strain, it is unknown how these people were infected.   

It’s getting to where the only thing that could affect the market in a bullish way is a weather issue.  The South American crops are large enough, the corn and soybean acreage for 2013 is large enough and the world should have more wheat this year than last.  The market sees the end of tight supplies.   

The market is also content right now despite the fact corn planting will be slower than last year, and could generally have a slow start.  A tidbit—the USDA crop progress report, released on Mondays, shows planting compared with one year ago and a five year average.  So that’s 2008-2012.  Both 2008 and 2011 were slow to get started, with large planting not taking place until the first half of May.  Of course, comparisons to 2012 will look very slow. 

Given the continued break in prices, it is hard to say whether or not the feelings of anger and distrust regarding USDA crop reports have gone away.  Certainly the volatility created by these reports is at an all time high.  For example, the two day drop, followed by the continuing dribbling in the past few days has resulted in a $1.05 decline in corn prices.    

It could be one of those emotional times for many farmers where the purchase of options helps.  For example, purchasing new crop put options may not turn out to be the most profitable trade.  But a few put options could help farmers sleep at night or provide time to consider other alternatives. 

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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. 

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