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Soybeans near $12 on La Nina pressure

Jeff Caldwell 12/27/2011 @ 4:59pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

The grains closed out a monster rally Tuesday with double-digit gains in the corn, soybean and wheat pits on the CME Group floor.

At the close, March corn was 13 3/4 cents higher at $6.33 1/4 per bushel, March wheat was 22 3/4 cents higher at $6.44 3/4 and January soybeans -- the day's leader to the upside -- ended Tuesday 36 3/4 cents higher at $11.99 3/4.

The rally Tuesday sat squarely on the shoulders of hot, dry weather brought on by a resurgent La Nina system. Whether or not prices will continue to track the weather system as closely into the distant future is unclear; however, the weather stress will continue for at least the next week, reports show.

"Farmers in Mato Grosso do Sul are concerned about the possibility of an important loss of the soybean crop because of drought. In some regions of the state, it hasnt rained for at least 40 days," says Agriculture.com Marketing Talk contributor agmr. "While producers provided an estimated loss of up to 40% of the productive potential of their crops, optimistic weather expectations indicate that only in January rains are back to normal."

There's not many real chances for considerable moisture in the short-term weather outlook for Argentina and much of the southern 1/3 of Brazil, though there are more chances for rain in the 11- to 15-day forecast, meaning the weather risk premium built into the grains right now will likely remain intact for at least the next few days, says U.S. Commodities grain trader and analyst Don Roose.

"The dominant issue is the weather, and within that, we could get some speed bumps with the outside factors, namely the Eurozone and the [January USDA] crop report," Roose says. "How long do we trade weather? On a short crop, a weather market, it's made daily and weekly. It's not like we just run into a drought and lose a crop."

Despite the relatively solid footing under the South American weather story right now from the markets' standpoint, that could change quickly moving ahead as other factors start to return to the grains and, more importantly, traders start taking profits from the surging markets.

"Where you're at now is you're overbought right now and you've added risk premium. They have a short potential crop (in South America), but that's in the making," Roose says. "Yes, we could take that risk premium off pretty quickly."

Roose points to conditions in the same region a year ago. La Nina appeared to be fizzling in mid- to late-December of last year, and while hot, dry weather did hamper crop potential earlier on in the growing season, the crops in Brazil and Argentina bounced back. So, that could happen again this year if La Nina behaves the same way. Thus far, though, the weather situation is altogether different so far heading into 2012.

"Last year, we thought we had a trouble crop there, but we had rain in February, and it made their crop. A year ago, La Nina had died," Roose says. "We're trend traders, and our trend's been up. So, technically, it's still strong."

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