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Market worries about hot spots

05/17/2012 @ 3:39pm

Kansas and some of the Corn Belt is getting dry.  It continues to be warm, with above normal temperatures in the forecast.  This makes traders uncomfortable, as the natural thought is “what happens if this continues?”  Making special mention of Kansas means that the wheat crop there could still suffer yield loss.  That’s one reason to make the wheat market nervous.   

Parts of Russia, the Ukraine and Kazakhstan are hot and dry and wheat crop estimates are at risk of dropping.  Reports out of Russia indicate that, if the situation continues, the government will reduce its crop size. The cuts may not be of the magnitude of two years ago when Russia suffered severe drought.  However, other wheat crops around the world are smaller, giving an uncomfortable tightening feeling to the supply/demand situation.    

The cash grain market has to be included in the “hot spots” category.  Demand for soybeans in the export markets is hot after China continued to buy old crop beans this week.  There is not a shortage of soybeans, but this strong demand in the 4th quarter of the marketing year is very unusual.  The market will need to originate a record amount of soybeans for the export market.  This record pace will continue into the first half of the 2012-2013 crop year.

If the cash soybean market is hot, then the cash corn market is boiling!  Basis levels at the Gulf are higher again today and ethanol/corn processor bids have been moving up on a regular basis.  Some of this is to be expected with farmers occupied in the field, but the continued Chinese demand here is also a factor.  There are almost two markets existing side-by-side. The futures market is comfortable signaling a larger crop is ahead, but the cash market is saying the reality of the situation is still very tight!

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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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