The negativity seems to be fading. The “oversupply” theme, which has dominated the commodity industry, is starting to lose its luster. Things are changing and you need to be aware.
While there are certainly large ending stocks of corn, soybean and wheat markets in both the United States and around the world, traders are waking up to the fact that we are one bad weather scare away from a price rally. They are realizing, perhaps, it’s best to not be quite so negative in their approach. Just a few weeks ago the funds were record short sellers on the grain markets, keeping prices suppressed on the notion of bountiful supplies. However, current South American weather forecasts and the current United States Drought Monitor are changing their opinion. A hot and dry summer might actually occur this year and anything below trend line yield in corn, soybeans or wheat would be a game changer for grain prices.
For the past few weeks the funds have been buying back some of their short positions and the question has now been posed, “What if all of that investor money from the stock market starts to find a home instead of as an investment in commodities?” The funds like to find good bargains and commodities are relatively cheap. Looking ahead, if it’s late June and a moisture sucking heat is in the forecast for the United States, Russia or China you can bet your booties they’ll be buying with wild abandonment and pushing prices higher.
In addition to weather changes and fund position changes, other outside markets are beginning to change as well. The U.S. dollar is actually weakening. Now, for the American farmer that is a good thing because it means our grain for export will be cheaper for other countries to import due to the currency exchange rates. This will perhaps shift buying interest of grains back to the United States.
Finally, as I wrote about months ago, crude oil and energy markets overall have risen. Higher crude oil prices are actually supportive to corn and soybeans because of the ties to ethanol and biodiesel.
As you can see, the winds are changing. It’s best you be ready.
Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
