Grain Marketing Highlights – June 5, 2009

Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu

Commodities Poised for Summer Rally
Several factors have come to light as possible reasons to expect a summer rally in the commodity markets. Included in these factors are: the CRB Index; the U.S. dollar index; potential performance of the Dow Jones Industrial Average; fund trading; and price seasonality. The Reuters/Jeffries CRB (Commodities Research Bureau) Index posted a bullish signal for early March 2009 and was followed by a secondary bullish signal in late April. This portends to the idea that the CRB Index should continue its rally over the summer quarter (June, July, August). Included in the mix of commodities the index tracks are corn, wheat, and soybeans.

Additionally, the U.S. dollar index has recently fallen through support near the 80.00 level, with the next level of support at 78.00. The nearby dollar index is currently at 79.57. A weaker dollar is expected to increase export demand for U.S. commodities over time. A weaker dollar is expected to lead to inflationary pressure on commodity prices, yet another reason to suggest a summer rally.

Another factor given for expecting commodities to rally over the summer is the economy. In February, the Dow Jones Industrial Average hit a low of 7,063. Since that time the Dow has rallied a little over 20 percent. The Dow could have further upside limited by inflation concerns. However, by late summer the Dow could move to its technical target of 9,330. An improving Dow generally portends to strength in commodity prices.

Fund trading (non-commercial speculative trading) has been gaining volume in recent weeks for corn, soybeans, and wheat. Non-commercial trading in wheat, for example, has taken wheat futures from a net short to a net long position. This has resulted in a pre-harvest contra-seasonal rally in wheat futures. Commodities can be expected to rally as long as non-commercials keep coming into the markets and adding to their positions.

Delayed row crop planting in the U.S. is expected to extend the seasonal rally for corn, which typically ends the first of June. Weather developments from here on will determine the length of time the rally can be expected to be extended. Soybeans tend to post their seasonal high in mid-July. The tight old crop soybean supply will continue to provide support while the new crop develops. For wheat, the first of June has marked the beginning of a seasonal rally that could last through March. The rally in wheat is likely to need assistance from a weaker dollar in order to improve exports. It is important to note that the wheat market generally reacts differently to market signals than do the corn and soybean markets. If one were to consider only the increasing forecasts for global wheat supplies and anemic U.S. exports for the current marketing year, then the current rally in wheat futures would not be expected and would not be happening.

Market Strategy
The outlook for commodity prices over the near term is bright. USDA will release the June Supply/Demand Report on June 10 and updated acreage numbers on June 30. Add to the declining acreage outlook the possibility of lower than expected yields for U.S. corn and reduced output for soybeans in the Southern Hemisphere, and prices have a reason to stay firm and rally.

Good pricing opportunities are currently available for new crop corn, soybeans, and SRW wheat. Seasonally, those opportunities are likely to remain available through mid-July. Weather developments and fund trading will determine the extent of the summer rally. Currently, Dec ’09 corn futures are trading at $4.64; Nov ’09 soybean futures at $10.63; and July ’09 SRW wheat futures are $6.37 per bushel.

For technical assistance on making grain sales decisions contact Carl L. German, Extension Crops Marketing Specialist.

Tags: ,

Comments are closed.