Published: January 30, 2008 03:00 pm            

Grain Angles: Erratic action signalling top?

Originally published in the January 25, 2008, print edition.

The corn and soybean markets continue to show surprising strength. The U.S. Department of Agriculture crop report held a few surprises which continues to supply fresh, bullish news to the market. Although the USDA report contained some bullish news, the market has been erratic.

The erratic action would normally signal a top is near. This market has shown signs of topping but then continues its way higher. The corn and soybean charts look like a top is being formed. Nearby soybean future charts look like they have topped and are moving lower.

New crop soybeans futures have an island-type formation which could lead to lower action in the days to come. The corn futures are all looking like the island formation is in place.

The soybean market has put in a 34-year high and the corn market has put in a 12-year high. It does make sense that the market may cool off until we get fresh news, acreage intentions and planting weather.

The general U.S. economy is shaky at best. The stock market continues to get pounded in light of the home mortgage crisis. The crude oil market has started to weaken and gold is following suit. It is surprising but the outside markets have as much influence on grain prices as the supply and demand of grain itself.

There are many sectors of agriculture that are suffering from super high grain prices also. First and foremost, most elevators are being stretched beyond limits to keep up with margin requirements. Basis levels have gotten wide for the simple fact that no one really wants to buy because the margin requirements are high and costly.

It is widely reported that the hog producer is having a tough time also. Even the ethanol industry will suffer with corn at this level. Will the old adage “high prices cure high prices” come true again? Everyone knows what the cost of production has done. It is a good idea to look seriously at covering the cost of production.

There are many things in play with the market and it will be painful to be caught without any grain sold. No one knows for sure which way the market will go over the long term but it sure is giving signals short term that the direction is leaning to a correction. It is important to push some of the risk of the high stakes game we are involved in off to someone else. It is important to make sales and continue to be profitable.

Corn futures are up at least 30 cents across the board. Nearby soybeans are up slightly but new crop soybeans were up 95 cents in the last two weeks. Again, as a point of emphasis, the chart formations are giving an indication that there could be a top in the market.

There is no way to know what other outside markets may influence the grain markets. These outside influences are factors that we are not used to monitoring and they can be frustrating to deal with.

        

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