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Fundamental market factors

The weather forecast makes these comments have a relevant lifespan of about 6 hours.  After that, forecasts could be different and the weather market could move either higher or lower.

At times like these, it is good to remember the fundamental factors underlying the market.  

  1. This is a weather market.  For corn, this is pollination time and brutal temperatures plus limited soil moisture are making the corn plant suffer.  Beans are not in their prime yield determining phase of development, but they are just sitting there, not growing.  Double crop beans may be sitting in dry dirt.  

  2. Reductions in demand in the corn market will include a slowdown in exports and ethanol use.  For exports, the Brazilians will take some of the sales that the US cannot accommodate.  They are cheaper than the US right now and are a substantial supplier to world buyers.  The Ukraine can also be a corn supplier.  For ethanol, it is hard to know how long plant shutdowns last.  The “good news” may be that ethanol production can be adjusted much easier than livestock production.  Killing a sow reduces demand for a long period of time; an ethanol plant can be started and stopped in a shorter amount of time.

  3. The short crops in South America mean that Brazil and Argentina do not have a lot of excess soybeans to sell.  The Brazilians in particular were very aggressive sellers of soybeans and now their offers are significantly above our prices.  The US is basically the world’s bean supplier until South America harvests another crop in the spring of 2013.

  4. At these prices, the Chinese can not purchase US corn unless the VAT taxes are waived by the government.  This reduces the risk that the Chinese come in an purchase large quantities of US corn.

  5. The wheat market is tighter than in the past two years, but it is not tight like the soybean market.  With crop damage in Russia and the Ukraine, the supply of exportable wheat is lower than thought earlier in the season.  The US can therefore export some additional bushels.  This is positive news, but the situation is no where near as extreme as the 2007-2008 time period.  It does mean that wheat can trade as a food, not only as feed.  Food wheat is higher priced than feed wheat.

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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