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Supply and demand tug of war

Agriculture.com Staff 01/30/2009 @ 10:32am

Usually one factor dominates the corn and soybean markets at any one time. In the summer, supply is most important and the market anxiously awaits every weather forecast and yield estimate. In the winter, demand is at the forefront of everyone's attention, with exports, crush and ethanol data being the news items of importance.

Right now, the market is dealing with both.

While demand still seems quite awful for corn, the past two weeks have seen good export sales, according to the USDA's weekly export sales report. Both weeks were over one million metric tons and may indicate end users finally need some coverage.

Nerves could also be frayed regarding the Argentine corn crop, where the worst drought in several generations has caused crop damage. Recent rains have allowed corn prices to drop, but given the lateness in the growing season, traders are unsure if rain softens the yield decline, or provides an actual benefit.

For soybeans, as US farmers know, the crucial time is coming. But tiny drought stunted plants cannot produce as much as normal, so rain during podset/fill is a good thing, but not a total savior.

The supply question for corn and soybeans becomes "are yield declines small or large?" Small declines are something the market can live with, given the weakened demand for commodities in general. Large declines give the market more to worry about, and extend the worry into the US growing season.

The concept of a "February break" has been gaining momentum in the past few days as well. This may be another way of simply saying the market has moved lower simply because it could not continue to move higher. Remember the adage "a bull needs to be fed everyday"? Weather or demand must provide a new bullish spark.

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.

Usually one factor dominates the corn and soybean markets at any one time. In the summer, supply is most important and the market anxiously awaits every weather forecast and yield estimate. In the winter, demand is at the forefront of everyone's attention, with exports, crush and ethanol data being the news items of importance.

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