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Ron and Sue Mortensen: Reasons to rally

02/03/2011 @ 5:54pm

The topic of food inflation is the most discussed issue this week, as market participants assess how much of certain basic commodities, including wheat and edible oils, foreign countries will need to import to meet the needs of the people. 

Unrest that started in Tunisia and spread to Egypt (stopping along the way in several other countries) has its roots in two basic issues - the price of food and the lack of jobs.  

Actually, other countries are bound to follow.  In many countries in Asia and Africa, the country’s ruler or government is viewed as a provider and the residents of these countries are dependent on the government for food supplies.  In the coming days, the unrest in Egypt may show the rest of the world that other countries can rise up and change their situation.

Beyond purchasing commodities for immediate needs, there are also several countries that are assessing whether their stockpiles of basic foodstuffs should expand.  In the long term, this is not a bullish market factor-usage does not increase at the same rate as purchases.  However, it certainly does make a tight situation tighter as supplies are pulled off the market and stored. 

Back to the more practical world of commodity trading in the US.  The weekly export sales report had some phenomenally large numbers in it - the problem was market participants knew 90 percent of it in advance.  The large sales to China, especially for new crop, had been announced in the daily reports.  Still, it not every week the US sells 150 million bushels of soybeans!

Old crop sales were larger than expected, with over one million metric tons sold for both corn and soybeans.  Actually, this week’s corn sales were a marketing year high.  There’s a certain profit-taking mood that can strike when this type of bullish news hits the market.  This attitude, as well as a sharply higher dollar, contributed to lower prices today. 

By the way, Happy New Year (Chinese Style)!  The markets in China are closed until next Wednesday, so there is not much in the way of news or data out of China right now.   

 

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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