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Rallies and risk highlight farm markets
The soybean market continues to struggle to figure out how use will be rationed before new-crop beans are harvested. The weekly export sales report highlighted a strong sales pace. However, what the market needs are some sales cancellations to ensure there are a few beans left at the end of the crop year.
Price usually is the mechanism to ration use, so the recent rally is certainly understandable. Otherwise, the difference between South American prices and U.S. prices needs to widen out in an effort to shift demand down to Brazil and Argentina. There is also the chance that U.S. crushers will need to import beans to meet demand.
Corn and wheat have seen their rallies more based on the crisis in Ukraine. Ukraine has become a substantial exporter of these grains, and the market is nervous about disruptions.
With the calendar flipping to March, the market has also dialed up its interest in planting weather. The fear is that the cold snowy winter will continue with a cold rainy spring, leading to planting delays. All of a sudden, the memories of the past two years come flooding back and the markets add risk premium.
With emotion driving the rally, basis levels have been weakening, so farmers have not seen the full benefit of the futures price move. This is different than a demand market, where the cash commodity is king and basis levels improve.
A “get ready” comment--the stocks report at the end of the month has the potential to move the market sharply higher or lower. The acreage numbers can be a big long-term influence as well. A quick review of past years’ soybean charts shows 30- to 70-cent moves the day of these reports. Remember, price limits on soybeans are 70 cents. The same sort of moves have occurred in the corn market, too. Corn price limits are 40 cents.
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.