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Ron and Sue Mortensen: The rotating bull market

10/25/2010 @ 11:35am

Bull markets often ripple through different commodities, and this one is no exception.  

It started in wheat, at the end of June.  There was certainly a valid reason for the rally—a massive drought in Russia and other areas surrounding the Black Sea caused a supply shock that is still rippling through the markets.  Several weather issues around the world have also caused a quality squeeze.  The US could be the largest supplier of milling wheat.  

The next commodity to ride the wave was corn, first as a feed wheat substitute and then on its own low yield supply shock. The supply/demand situation for corn is still very tight.  

However, for right now, there is a concern about slow exports.  Last Thursday's export sales report had the smallest corn sales in over six years.  High prices have reduced demand.  Plus the Brazilians have been steady exporters of their corn crop from last year.  For corn, the US is not the only game in town!

So now it looks like the bull torch has been passed to soybeans. Here the story is the opposite of corn-large export sales to the largest importer of soybeans, China, have led to a true demand bull market in soybeans. The Chinese have been buying in South America as well.  There are large margins for crushing beans in China, so it is no wonder volume has been so strong.  

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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