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Your Profit: Record crops, record demand

Agriculture.com Staff 02/09/2010 @ 1:14pm

In the past, big crops have meant negative price swings. However, increased world demand changes that rule.

All indications are that Brazil is set to harvest a record soybean crop and Argentina will have a large corn and soybean harvest as well. This news would usually take corn and soybean futures sharply lower; however, this year futures have stayed in an orderly uptrend.

U.S. corn and soybean farmers have had several opportunities to sell $4.40 CBOT corn futures and soybean futures at $10.50 since the fall harvest of 2009.

We are changing from a nervous market concerned with global consumer demand and possible trade problems in February 2009 to a demand-driven grain market focusing on record potential demand in 2010.

Here are 5 key metrics that I watch each month in analyzing global corn and soybean demand.

  1. The Commodity Research Bureau (CRB) index. Since the major low in February 2009, the CRB has been trending higher as global commodity demand improves.
  2. The U.S. Dow Jones Stock Average. This metric shows an impressive rally of over 60% since the major lows in March 2009. The U.S. stock market rally has lagged performance in other markets, as the economies especially in Brazil, Russia, India, and China have expanded in 2009.
  3. U.S. Treasury Bonds. The bond market has been hit hard in the last several months and is vulnerable to more downside pressure. As bonds go down, long-term mortgage rates go higher and odds are your cost of home and farm mortgages will move higher if the U.S. and global economies continue to improve.
  4. U.S. Dollar Index. The U.S. Dollar Index is in a long-term downtrend. After a counter trend rally in December 2009, the U.S. dollar has turned lower again. This is keeping U.S. exports very competitive in the global markets and is a positive factor for U.S. meat and grain exports in 2010.
  5. Crude Oil Prices. The crude oil market has been trending higher since the major low at $32 per barrel in December 2009. There is a definite correlation between crude oil prices and corn prices. Now with crude prices heading higher, look for higher corn and soybean prices into the spring and summer of 2010.

In the past, big crops have meant negative price swings. However, increased world demand changes that rule.

All of this is good news, but do these key economic metrics suggest that prices are going to go straight up and stay higher?

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