Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
Commodity Price Drop May Stall
Numerous reasons are given by grain market analysts for the recent sell-off in the corn and soybean markets, among them: the markets were overbought therefore a sell-off was in order; non-commercial speculative traders are exiting commodities to invest in the stock market; growing conditions in the Corn Belt are reported as ideal; the price of crude oil has declined; and ‘bull markets must be fed’ in order to be sustained. Since the end of June through the third week of July closing prices for Dec ’08 corn futures have dropped nearly $2.00 per bushel, Nov ’08 soybean futures prices have dropped nearly $2.50 per bushel, Dec ’08 SRW wheat prices have dropped nearly $1.60 per bushel; and Sept ’08 crude oil prices have dropped nearly $23.00 per barrel. Some would suggest that due to the ideal growing conditions in the Corn Belt that commodity traders have bid the weather premium out of current price offerings. It can also be suggested that demand destruction was occurring at the higher price levels resulting in reducing demand for commodities and thereby lowering price offerings. Regardless of the reason(s) that one wants to hang their hat on for why prices have done what they’ve done, the important consideration regards the question “What are commodity prices likely to do?”
Marketing Strategy
Currently, the trend in commodity prices is down. The downtrend could take a U-turn in the event that ‘ideal’ weather conditions in the Corn Belt don’t hold up. It will take ideal growing conditions in the Corn Belt throughout the rest of the growing season and a late frost in order to garner yields that are in line with the trend line. At some point over bought markets that incur major sell-offs will become oversold and traders will then recognize buying opportunities. One has to wonder whether the index funds are currently taking note of buying opportunities. Due to the recent sell-off in the corn and soybean markets and the lateness in U.S. crop development it is advisable to hold up on making additional new crop sales. Currently, Dec. ’08 corn futures are trading at $5.90 per bushel; Nov ’08 soybean futures are trading at $13.75 per bushel; and Dec ’08 SRW wheat futures are trading at $8.08 per bushel. The weekly export sales report was considered neutral for corn, and bullish for soybeans and wheat. For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.