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Another sharp rally for the CME Group grain markets

07/28/2010 @ 11:00pm

CHICAGO, Illinois (Agriculture.com)--Though they gave back a portion of sharp, early gains, the CME Group grain prices settled strongly Thursday.

The Dec corn futures settled 3 cents higher at $3.93 3/4. The Nov. soybean contract finished 10 cents higher at $9.88. The Sep. wheat futures closed 12 cents higher at $6.27 1/2. The Dec. soymeal futures contract settled $2.70 per short ton higher at $286.90, and Dec. soyoil closed up 43 points at $40.00.

In the outside markets, the NYMEX crude oil is $1.37 per barrel higher, the dollar is lower, and the Dow Jones Industrials are down 20 points.

Tim Hannagan, PFGBest.com senior analyst, says it's a 'perfect storm' for wheat, and corn and soybean markets are following the run-up. 

"Crop-weather problems in Russia is the main catalyst for this huge rally in wheat. However, the funds are very short wheat, and are trying to get out of those positons. So, they are buying their way out of the short positions," Hannagan says.  

Funds are trying to buy back an average of 15,000 contracts per week to just get even the market, he says. 

Five weeks ago, the trend-following funds held a record 77,000 short wheat contracts. 

"Since then, they have been buying back 10-15,000 of those contracts per week. Coming into this week, they still had 22,000 short contracts. Are there enough sellers is the question?"

With little bearish news, who wants to sell now?  

"The funds aren’t really trying to get long the market, they are just getting out of their ‘short’ positions. If there are people that are willing to sell, the funds will be right there to buy. I said last week, that if that buying comes in, the wheat market could go to $6.40 per bushel," Hannagan says. 

On Thursday, the CME Group wheat market already hit $6.32 level.

Today, everything is coming up roses for the grain markets. Outside markets are supportive, more, bad Russian weather, and for that matter all European Union wheat producing nations.

Looking ahead, tomorrow could bring some profit-taking, headed into the weekend. 

"Though the trend-following funds are short this market, someone has been long and will want to take some profits. You also could see some 'month-end' profit-taking tomorrow. So, tomorrow's market could be down," he says.

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