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A summer checklist-Ron and Sue Mortensen
While not an exhaustive list, here are some items to keep track of this summer as volatile summer trading unfolds.
1. Weather Forecast—the top item every year! Most important this year simply because supplies of so many commodities are tight! After the agony of getting the crops planted, market participants will prefer to see mild temperatures and adequate rainfall. Temperatures will be key especially for corn planted late and/or in poor conditions. Rainfall later in the season will also be crucial for the soybean crop.
2. Basis Levels—a key measure of demand! The market knows supplies will be tight at the end of the crop year, but it will be interesting to see what price level is necessary to pry the last few bushels out of farmers’ hands before the new crop supply is available. Strong basis levels can provide an additional bullish flavor to the market—weaker levels can be a signal that prices are too high.
3. The Value of the US Dollar—the weak dollar has been great support for commodity prices. Some days when commodity specific news is lacking, the price of the dollar has significant impact. On other days, it is a minor factor.
4. Gold, Silver and Crude Oil Prices—these commodities are hot! Sharp moves in these commodities, watched by all types of traders, often produce similar moves in corn, wheat and soybeans. Crude oil, corn and soybean oil often trade together as an “energy basket”. Or there can be money flowing into many types of commodities, particularly at the beginning of a month.
5. Russian/Ukrainian/European/Canadian Weather—until more is known about the world wheat crop, watch out! These are all important wheat areas that bear watching. Several parts of Europe have already suffered with dryness and the EU wheat crop has been reduced. Plus Russia is a little dry and Canada is a little wet—spring wheat planting is slow again this year.
6. Chinese Weather—the world’s largest consumer always bears watching! The corn crop will be particularly key, as China always seems to be on the edge of becoming a significant importer of corn.
7. The State of the Chinese Economy—this is still a planned economy. The government can and will influence prices and consumption. Leaders in China are very concerned about walking the fine line of providing adequate growth to keep the population happy while squashing speculation and an overheated economy.
Remember to pay attention to the USDA’s reports issued on June 30th. Acreage numbers will be key given the slow planting pace. The grain stocks will be watched for indications that price has reduced demand. All together, this data will serve as either bullish or bearish information that will influence the grain trade for the remainder of the summer.
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.