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Ron and Sue Mortensen: Winter Calm?

With the volatile growing season in the rear view mirror, one would think a little calm would be good.  The post harvest futures market thinks that is a bad idea. 


The sharp drop in prices after the November crop report, aided by a stronger dollar and the Chinese inflation crackdown, lasted until almost Thanksgiving.  While the market then had a few days of quiet action, the volatility returned yesterday with a strong up move.  A swirl of positive fundamental news, a weaker dollar and first of the month money flows all combined for a sharply higher day.      


For farmers with inventory, this rally has also been accompanied by stronger basis levels.  The early harvest and smaller crop started this trend.  In the eastern Corn Belt, ethanol plants and processors are competing for corn supplies, plus farmers have been asked to deliver January contracts early.  Now, grain trade is slowing down except for small amounts of farmer selling as the end of the tax year approaches.  


Most of the month of December seems to lack fundamental news to drive the trade.  There are no new crop estimates and trading volumes become lighter as traders take less risk in the holiday season.  


Weather details from South America would seem to have the most potential to create volatility during the holiday season.  It is the equivalent of June in Argentina and Brazil, so corn would be the most at risk.  However, soybeans probably attract more attention due to the continued presence of China as the main buyer.  Stay tuned to the news for the latest La Nina updates from Brazil and Argentina.      


If December lacks news, then January will more than make up for it.  The final crop reports and grain stocks will be out on January 12th.      


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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