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Report to create volatility flurry

08/09/2012 @ 3:45pm

There is not much to say regarding the markets when such a crucial report will be issued at 7:30 a.m. Friday morning.  

The average guesses are:

Corn=11.026 billion bu     86.4 harvested acres        127.3 bu/ac yield

Soybeans=2.817 billion bu 74.8 harvested acres       37.7 bu/ac yield

Every number will be important.  The supply and demand tables will also be key as traders look for clues about how these small crops will be rationed.  It has been 24 years since the 1988 drought and the structure of the market is very different.  Ethanol did not exist, China as a soybean importer did not exist, Russia was an importer—now they are an exporter.  Overall, in the world, meat consumption is on the rise.  The list is long.  

The world supply/demand situation will be interesting as well. There are several key areas where drought has also affected crop sizes—India, the EU, Russia/Ukraine/Kazakhstan are the main ones.  Wheat crops have been reduced, but also coarse grains, which includes corn.  How many countries have exportable supplies to meet the world’s needs?  Right now, the short list includes Brazil with its large corn crop.  There is also wheat available from several countries in the world, but that could tighten up later in the season.  How bad will it be before South American harvests (hopefully) relieve some of the pressure?  

Remember the markets will trade through the report and the pit will be trading along with the electronic market.  If the previous USDA report days are any indication, the five minutes after the report will be extremely volatile as traders try to absorb all the data.  After that, who knows?  

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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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