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Late season volatility surge

The weather has caused a late season surge in volatility, as the temperature climbs and soil moisture declines. Soybeans continue to be the leader -- up about $2.00/bushel, due to their need for water later in the season and the tighter US supply/demand situation.

Friday is month-end and first notice day for September futures contracts. Traders have been liquidating trades since the sharp move on Tuesday and may be reluctant to carry a large position over a three day holiday weekend. This, and whatever the Monday night weather forecast shows, leads to predictions of wild trading for early next week. Plus, there will be crop estimates (the first one Wednesday afternoon?) as traders prepare for the September 12th set of reports. 

The weather pattern also leads to a discussion of what is important to a corn or soybean plant. Temperatures or rainfall?  With the exception of this week’s heat wave, temperatures in July and August have been several degrees below normal and about 10-12 degrees below the heat of last summer. Rainfall, on the other hand, has been almost non-existent. There are a few small areas of the country that have recently received rain -- a farmer just south or west of Chicago for example may have received an inch last week. 

The soybean rally has also produced a change in the spreads. The bull spread has become the feature of the week. Translated, this means traders have been buying a nearby contract (November) and selling a deferred contract (March or May or even November of 2014).  It’s a bet that the supply of soybeans will be tight until another crop is grown.

For farmers, this means the economics of holding beans after harvest have changed. With November beans 30 cents over March beans, look at local bids and see if it makes sense to move more beans off the combine.

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. 

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