Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
Grain and Oilseeds Rally After Sharp Sell-Off
Grain and oilseed futures contracts continued to decline sharply during Monday’s session. However, commercial and non-commercial buying interest picked up in Tuesday’s overnight session, with a modest rally continuing through Wednesday’s day trade. The recent sell-off dropped near-by new crop corn and soybean futures prices by about $1.00 (+ or -) per bushel since their respective life-of-contract highs were hit on August 10 and September 4. Reasons given for the sell-off are attributed to corn and soybeans being over bought resulting in short covering on the part of non-commercials; new supplies coming on due to ‘harvest pressure’; and a lack of “fresh” news. The good news is that there may be reason to believe that the rally could push prices somewhat higher. Recent Fed action to invest $40 billion a month to buy mortgage backed securities is weakening the value of the dollar which should help U.S. exports. Time will tell regarding investor preferences for either the stock (equities) or commodity markets. Nevertheless, the Fed action was viewed as positive for both markets in the near term. Market volatility remains elevated as a result of the uncertainty in world geopolitics. There too remains uncertainty concerning the eventual impact on the overall economy from QE3.
Other price supporting factors that keep being mentioned by commodity news sources include: dry weather concerns in the Southwestern U.S. which could slow winter wheat planting; dry weather concerns for the Southern Hemisphere which could impact 2013 South American production potential; dry weather concerns in Australia and other wheat producing regions around the world; and China’s appetite for importing more U.S. soybeans. These concerns are currently helping to support the soybean, wheat, and corn futures markets.
Market Strategy
Although one attempts to shed light on expected price direction computer trading seems to be the order of the day. Computer trading is most likely the reason for today’s double digit gains across the board. When price algorithms are hit the computer programs tell the non-commercials (speculators) when to place buy or sell orders. The algorithms are driven by technical indicators. One might surmise then that the trick to determining whether one wants to hold or advance sell orders becomes a matter of following the money. However, it is often stated that eventually fundamentals will take precedence in determining price direction. The only thing known for sure at this point in time, fundamentally, is that the U.S. is harvesting short 2012 corn and soybean crops. The extent of the shortfall won’t be fully known until this year’s U.S. crop is harvested. In the meantime, the corn and wheat markets continue to depict no carry in the forward contract months with SRW wheat futures depicting only a 10 cent carry through the May ‘13 contract before becoming inverted. USDA’s next monthly Supply/Demand report will be released on Thursday, October 11.
The U.S. 2012 corn harvest is expected to hit the 50% mark in next Monday’s crop progress report with soybean harvest to be in the mid-twenties. Weekly U.S. corn and wheat export inspections were viewed as bullish. Soybean export inspections were bearish. The weekly export sales report will be issued by USDA tomorrow (Thursday) morning, September 19. Currently, the day trade closing futures prices for Wednesday afternoon September 18 were: Dec ‘12 corn futures $7.53; Nov ‘12 soybeans $16.70; and July ‘13 SRW wheat futures $8.60 per bushel.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.