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Roy Smith: Psychological markets

08/13/2010 @ 2:58pm

One of the 'Murphy’s Laws' for commodity traders says, “The market is not logical; it is psychological. 
The market’s reaction to the government report yesterday seems to prove that principle to be validAs I looked at the numbers released yesterday morning, there did not seem to be any shocking revelationProjected corn production was slightly larger than trade estimates but within the range of guessesSoybean production was at the low end of trade estimatesLogically, the response to those numbers should have been a non eventIn times of bearish psychology, predictions of record yields would have resulted in prices going sharply lower in response.
Stocks at the end of the marketing year were somewhat more bullish than production numbersThe report projected slightly less carry over than the trade estimatedStocks of soybeans were already projected to be very tight at the end of this year and they remained slightly lower than the trade estimated at 160 million bushels, but higher than last year’s carry over of 138 million bushels. 
Market action following the report was probably the most interesting thing that happened yesterday Prices opened higher but promptly went down, at one point being a penny lower in beans and only a penny higher for cornBy the end of trading, however, corn was more than 10 cents higher and beans were 13 higherIt seemed that the trading pits were trying to run the psychology both ways to see whether the bulls or beans were strongestIn the end, the bulls won and prices closed up on the day. 
There are a couple of outside factors that farmers need to keep in mind as they make plans for this year’s harvestThe first is that stock of soybeans are very tight now, while cash corn seems to be plentifulI checked with elevators in my area and they report that old crop corn is being taken only when there is some place for them to haul itWe will probably be still trying to move the 2009 crop when the harvest starts on this year’s production. 
Soybeans are exactly the oppositeThe market still has a premium bid for soybeans to be delivered immediately The market is telling farmers to store corn and sell beansThat is a positive indicator long term for soybean prices!
The second thing that should be remembered is that the middle of August is a time when corn prices are normally dropping and soybean prices are normally rising It is not unusual to have the grains go opposite directionsCorn is mature enough that fear of early frost or other weather problems are not on trader’s minds Frost is still a possibility for soybeans. 
An interesting side note is the fact that soybean carryover is projected to double at the end of the next marketing yearFor the past several years, government reports have projected soybean carryover to have a big increase in the following yearIn most of those years that increase did not happen and soybean stocks were much tighter than projected

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