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Market volatility returns
The weather forecast and the current Midwest crop tour have combined for some large price ranges this week. The comments and tweets from crop tours always seem to cause anxiety. Since the August crop report on the 12th, the questions regarding planted acres and a hot, dry finish to the season have ramped up concerns.
While Tuesday and Wednesday produced rallies, today’s (Thursday’s) trade produced a sell-off. The rainfall was probably more than most forecasters thought and the comments from the fields showed decent to large corn yields, in spite of concerns about late planting.
Due to a tighter soy supply/demand forecast for 2013-14, the weather forecasts have produced the sharpest rally in soybean prices. Yield is just that important. However, there is the subject of export competition. While US supplies on September 1st will be very tight, Brazil and Argentina both have more crop to sell versus September 1, 2012. It’s available to the world market!
The southern hemisphere supplies have added to the difficulty in forecasting price possibilities here in the US. While Brazilian and US soybeans are worth approximately the same price to a Chinese buyer, they are not worth the same when it comes to being delivered in Chicago against a futures contract. So tight supplies in the US definitely affect US prices more. A tight potential carryout, if the weather does affect final yields, adds to US price volatility.
Export competition also continues in the corn market. The US is getting used to the idea that several other countries have increased production in the past 5-7 years. With the short crops recently, it will take a long time for the United States to recover its position in the world corn market.
While US new crop futures prices have come down, suppliers in other parts of the world are selling corn even cheaper. Just this morning, headlines showed Indonesia purchased corn from South America and the Ukraine for delivery in the last months of 2013. This should be a timeframe where the US dominates trades, but others have the volume and the price.
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.