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| A variety of factors provide a "stage setting" in bull or bear markets.
This season, thus far, our production factory appears in decent shape: plenty of early moisture, humidity along with the heat; each season we either produce above or below trend. Those seasons with cool Junes in the I- states & normal July temps & moisture appear to produce above trend. The question is: what effect do temp's above 92 have on these new hybrids? I do not know. In the 60's thru 80's temps in July above 92 were not positive toward corn yields.
Last week the spec community began to aggressively cover shorts & add to longs....however, the open interest in grains is yet average at best. Price peaks in the past several years in corn, for example, were associated with an open interest 50% larger than current levels. Specs reached a level of 1580 longs versus 1000 short contracts....we are nowhere close to that level.
In the old days, we surmised we'd kill the crop 3 times each growing season.
The stage setting is a bit different this year. World grain production (oil seeds & coarse grains) is in the process contracting slightly.
The key question is the demand setting. Are we in a supply bubble which should be sold aggressively in the next couple of weeks, or is the demand picture changing? The common expectation for the past months has been a huge supply of everything. Are real world users complacent? Who does not need to cover, who does need to cover needs?
Any USER in the previous weeks and months who approached his boss to suggest covering the next 6 months in requirements would most likely have been thrown out of the boss's office..."read the paper man! We are buried in supply!" (That's how the real world works)....
There exists a psychological cycle in weather markets:
1. Producers aggressively sell the first strong upside move...they are anxious to do such as they typically have been beaten up with concern about the economy and large crops and future lower prices.
2. Bull markets feed on selling. You cannot be a buyer unless there is a sell order. Same on the down swing. Bear markets feed on buy orders. Thus far, the market has "gone to the sell orders."
In the 1960's & early 1970's when the stock market was laden with fear, folks left the equity market in droves and flooded into commodities. Will this occur again, I do not have any idea. Except with the new EFT products, some specs have a greater comfort level. "Folks love a good bull market in beans or corn."
3. Once the first round of sell orders have been accomodated the market will digest & if crop concern accelerates another wave of buying by specs will move above the previous round of selling (which becomes support)...The producer begins to wonder? What is going on? The producer may not be as aggressive in selling this level of price.
4. If crops have been hurt, via confirmation by crop report, the Users have some legitimate justification to jump in on the long side....Producers walk their fields and may conclude they do not wish to sell more...or may, in fact, sell more...except a boiling psychology assumes control in the marketplace raising confusion.....if yields suffer a real downward adjustment, those oversold race to cover, specs race in to get the last 50 cents....and the MOVE is OVER.
FOLKS DO NOT LIKE TO BUY when the facts are not clear, nor when the supply outlook is murky. We just went through this cycle this past year in hogs and the same in cattle. Traders like THAT TREND....problem is, by the time there is a clear trend, the sharp boys are dumping on the newcomers.
My entire point. Producers must view these first higher prices as attractive sales, but the setting this year is different. Don't get carried away. We have a lot of August to endure yet; will either be a yield building period or a reverse in yields.
Crop is not yet ready for the bin.
Edited by SeniorCitizen 7/18/2010 08:20
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My .02 { where is yours )
