Good Morning,
I am writing this installment on Saturday Morning October third… Yesterday saw a clean sell off in the grain markets. Corn, Beans, Wheat futures all settled on their lows of the session, and in most cases new multi-week low settlements.
A couple things continue to weigh on these markets.
First off, is the size of the crop now being harvested. Informa came out with estimates of a 13.1 Billion Bushel Crop in the Corn along with a 3.3 Billion Bushel Soybean crop. And the harvest is still on going, so both of those could and should grow further.. The lone fear which had been propping up bullish hopes over the past month was that of an early killing frost, or heavy rains which would have slowed harvest.
Neither of these has come to fruition.
So fundamentally there is huge supply pressure on these grains. The American farmer just owns too much grain, and there is more in the pipeline.
Similarly, we saw contract low settlements in the Cattle. That is suggesting liquidation coming by the farmer in that market. Which in turn, means less demand for grain as feed for these cattle.
Again, weighing heavily on the supply end, pushing prices down.
Technically, we had CZ,(DEC corn) settle down 7 1/2 cents at 333, Nov Beans down at the 885 level, and I had mentioned in earlier posts the possibility of a flush down to 884… Dec Wheat had a contract low close at 441…
If we break these grains lower next week, going into the short holiday week, technically it looks like another possible 30 to 50 cent break is possible in Corn and Wheat and at least 30 to 50 cents in beans, if not the potential for even bigger down moves in the beans if the crop continues to grow…
Typically with fundamentals like this, intra day rallies are typically just selling opportunities and therefore opportunities to get short and take advantage of these powerful forces pressuring prices.
Also it is in the interest of the US Government to have lower commodities prices brought on by huge real time supply. Lower prices for grain, livestock and all the myriad ways food prices affect the inflation figures means that its good in the eyes of the Government for corn, beans, wheat, cattle and hogs to be under price pressure at this time.
President Obama has to be doing back flips because the law of supply and demand is helping keep prices lower more so than any sort of government legislation could ever… If supply were tight and prices for beans and corn and wheat were double what they were, there would he cries for price controls or God knows what else.
There would be investigations into who was ‘manipulating prices higher’ just like when oil was at 150 a barre ll…Fortunately for us, the law of Supply and Demand eventually wins over any political hysteria brought on by perceived price manipulation.
On that note, one should also take note that the CFTC announced limits curtailing the position size maximum for speculative commodities funds, ie Hedge Fund type operations with large positions in commodities futures.
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The funds do have the power to exacerbate market moves, they can’t necessarily create trends, in my opinion, but they can push the trend farther and harder due to their size. The decision to limit the size of their trading positions will limit the extent to which these funds can push the markets.
That decision also fueled position liquidation yesterday as the funds ‘re-balance’ in anticipation of the new regulations.
As for next week, now that we have rotated lower, we have to watch and see if we will break through more technical support levels below in these markets. Corn and Beans are especially positioned for the possibility of much lower prices.
All in all, the trend in these grains is lower, with continued pressure from the ever increasing size of the crops as they are harvested.