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Weather rally rules

01/06/2012 @ 11:58am

This is the time of year when the grain markets are likely to be flat. Harvest is over and the next crop is only in the planning stages. Those factors were relevant years ago. That is not the case now. 

While nothing much is currently going on with crops in the United States, the crop in the Southern hemisphere is now reaching the critical point. Along with that, the economic situation in Europe is a factor that is as important to grain prices as growing conditions. 

A lot has been written about how the strength or weakness of the dollar moves the price of soybeans and corn being exported. When the dollar goes up, grain prices generally go down. That has been happening consistently for a long time. 

For most of the past four weeks, the big mover in grain prices has been weather south of the border. As such, market action is typical of a weather rally regardless of where the weather problem occurs. Weather rallies usually start slow and gradually build as the problem becomes apparent to more people. That has certainly happened this year. Beginning on December 14, soybean futures were higher eleven trading days until taking a breather this week. 

Big daily moves are characteristic of weather rallies. Since December 14, there have been three double-digit moves up. Yesterday, January 5 saw a double digit move down. Action since December 14 certainly qualifies as a normal weather rally from that perspective. Finally, when the rally ends depends on not just the weather, but the trade perception of the weather. The old principle that the market is always most bullish at the top and most bearish at the bottom is especially true with weather-induced rallies.  

Finally, in many years the January crop report that will be released next week has a tendency to change the trend of the market. This occasion can be compared to the July 4 weekend for crops in the northern hemisphere. If the rally continues through the rest of the week, it may end with the release of the January report. It doesn’t happen every year. However, it happens often enough that farmers should be aware of the price risk with prices where they are after being in an uptrend for several weeks. I would not try to discourage anyone from making a sale at these levels even though the long terms charts show good odds for higher prices later in the spring.  


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