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Farmer vs. end-user stand-off underway

06/14/2012 @ 3:26pm

Basis levels signal the strength or weakness in the cash market.  It helps to occasionally think of the futures market as the more emotional market and the cash market as the more reality driven market.  After all, there are pigs and chickens to be fed, starches and sugars to make, export commitments to fulfill, etc.  

Right now, the reality of the cash market is that it is very, very hard to buy cash corn.  Are farmers and elevators sitting on the last of the supplies?  Or is it not there? The basis levels must encourage sellers to make cash corn available to the market.  

Meanwhile, the emotional futures market is caught between every weather forecast--and there’s a new one every six hours.  Plus, there is a lot of weekend anxiety ahead, especially in Europe.  The Greek elections have everyone on edge.  While the Greek elections may not directly affect the price of corn, but risk reduction in front of the weekend is the order of business.  Therefore, weakness in soybean prices, for example, can be attributed to traders reducing the size of their positions, or eliminating them all together.  The psychology is not pretty-get me out now because I can’t afford “big” losses next week.  

On the other side of the coin were positive export sales this morning for soybeans, a larger than expected May crush number, plus rumors of Chinese buying small lots of corn both yesterday and today.  

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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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