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The roller coaster of prices

02/14/2013 @ 4:02pm

On the roller coaster ride of prices, this week is a dip.  As the market struggles to transition from small crops to large crops, traders understand, for example, corn cannot be priced at $7.50 one day and $4.00 the next day.  Somehow the price change will be in smaller increments and take longer than a day.  

There is also the question of what large crops are being considered in the marketplace.  A substantial Brazilian soybean crop, as well as corn crop, for starters.  Then traders anticipate substantial, although unplanted, US corn and soybean crops.  Without too many comments about the necessity of actually growing the crops in the US, traders realize the likelihood of larger supplies ahead.  

If there is the likelihood of larger supplies, the question of how large demand is tends to take a backseat.  On the roller coaster ride, though, demand will be a concern every so often.  This is because the corn and soybean markets still struggle with what is enough carryover to have on September 1st and what sort of demand path is necessary to make it to September 1st.  

If these demand concerns do not cause an outright price rally, what else can happen?  The alternative can be the spreads (the difference between an old crop price and a new crop price) do some of the work to reduce demand. Simply, if July corn is priced $1.50 higher than December corn, is that enough to make the buyer wait until December when corn is “on sale”?

Key upcoming reports to watch for include the data to be released at the USDA’s annual Outlook Forum, to be held next Thursday and Friday.  It will really be the first time USDA economists will present their ideas regarding 2013 supply and demand.  Regular updates of new crop supply and demand will not begin until the May WASDE.  

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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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