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Watch global market factors

Al Kluis 03/20/2012 @ 11:16am

I have traded the grain markets for 37 years. The markets have changed dramatically since 2005, and how I now trade and how I approach the grain markets have also changed dramatically. For farmers, the ways you get your marketing information and the ways you should use that information have also changed.

Weekly Perceived International Price for Corn

So what caused these significant changes in 2005? There were three major factors that happened between 2004 and 2007.

1. Wall Street firms started to view commodities as an asset class. After the Internet bubble and the drop in short-term and long-term interest rates, Wall Street companies, pension funds, and investors began looking at new ways to make money. They began taking a small part of their massive portfolios into the commodity markets. They put that money to work into commodity futures, commodity funds, commodity indexes, and commodity ETF's (exchange traded funds). This brought in new energy and a whole new dimension to the energy, grain, and livestock futures.

2. The Chicago Board of Trade (CBOT) became part of the CME Group Inc. The Chicago Mercantile Exchange (CME) went public first and eventually merged with the CBOT. This changed how grain futures were traded and how customer accounts were handled. The focus of the CME was to drive trading volume by marketing to hedge funds, indexes, and Wall Street firms. Trading volume in the grain markets exploded.

3. The futures trade moved from the pit to electronic trading. This was part of the drive by the CME Group to make the markets more transparent, more liquid, and to expand the trading hours. Again the CME efforts really worked. Trading volume in the grain markets soared, and during a weather market in 2008, you could almost trade around the clock.

What I watch for
For the first 30 years of trading, I watched the U.S. global supply/demand reports, studied weather, and tried to anticipate fundamental changes. I still stay aware of them. But now when I write my morning email updates, I focus on the following points in the order they are listed.

● Global stock markets. I watch what the global stock markets are doing in China, Japan, Europe, and the U.S.

Weekly Perceived International Price for Soybeans

● Crude oil. The price of crude tends to pull corn prices higher or lower.

● U.S. dollar index. When the U.S. dollar is trending lower, commodities move higher and vice versa.

● Gold. When investors are buying gold, they are usually buying the rest of the commodity markets as well.

● Weather. If weather is significant, I may put in a few weather and supply/demand comments. What used to be my first factor is now my last – if I even write about it at all.

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