Soybeans, Corn, Drop on Wet Weather, Investment Demand Cuts
Comment of the Day

June 16 2011

Commentary by David Fuller

Soybeans, Corn, Drop on Wet Weather, Investment Demand Cuts

Finally, some good weather news for agricultural crops, reported by Bloomberg. Here is today's comment by Jeff Wilson:
June 16 (Bloomberg) -- Soybeans fell to a four-week low and corn slumped to the lowest price since March on speculation that warm weather during the next two weeks will aid U.S. crops while a stronger dollar cuts investment demand.

Soil moisture is adequate to wet in 83 percent of the U.S. corn- and soybean-growing areas, and warm weather next week will aid development, according to T-Storm Weather LLC in Chicago.

Stock markets fell worldwide to a three-month low, the dollar gained, and European government-default risk rose to a record.

"There's in nothing in the weather forecast that appears to threaten to reduce U.S. yield potential," said Mark Schultz, the chief analyst for Northstar Commodity Investment Service Inc. in Minneapolis. "Europe's deepening debt crisis and a stronger U.S. dollar sparked fear of slowing economic growth and demand."

Soybean futures for November delivery fell 16.5 cents, or 1.2 percent, to close at $13.5025 a bushel at 1:15 p.m. on the Chicago Board of Trade, after touching $13.4575, the lowest since May 18. The U.S. government said last week that reserve supplies before the next harvest will rise as export demand slows.

Corn futures for December delivery slid 13 cents, or 2 percent, to $6.53 a bushel on the CBOT, after touching $6.50, the lowest for the most-active contract since March 17.

The price also fell on speculation that the U.S. Senate would vote to eliminate a tax credit and an import tariff for ethanol production, providing the strongest signal yet that Congress will curtail subsidies for corn-based biofuel, Schultz said.

After the close, senators voted 73-27 to advance the measure as part of an economic-development bill. Still, the legislation isn't likely to become law.

The "Senate has spent the better part of a week on an amendment that is unconstitutional and going nowhere, even while the news pours in that OPEC has hit a high-water mark of $1 trillion in revenues," Tom Buis, the chief executive officer for Growth Energy, a trade group supported by the ethanol industry, said in a release.

Corn is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, government figures show. The U.S. is the world's largest producer and exporter of both crops.

David Fuller's view Commodity price inflation loomed as an increasing threat to the global economy this year, culminating in highs for many prices around April. They are still a significant headwind but there has been some welcome respite over the last two months.

Most importantly crude oil's rally has stalled (Brent weekly & daily) (WTI weekly & daily) but a further correction is needed. Fortunately, this looks likely over the short to medium term.

Among staple foods, corn (weekly & daily) supplies are exceptionally low and a late planting season in the USA due to a wet, cold spring has jeopardised this year's yields. Nevertheless, prices have fallen back from the 2008 high near the $8.00 level. Improving weather and a reduction in speculative / tracker positions has capped the rally for at least the near term.

Soybeans (weekly & daily) have encountered resistance from the upper side of their current trading range once again but a sustained break beneath $13 is required to indicate significant pattern deterioration.

Wheat prices (weekly & daily) have been mostly rangebound since last August's spike peak. Significantly, the new high in February was not maintained and a short-term downtrend has been established within the broad trading band. A close back above $8 would be required to reaffirm support from the lower side of this pattern.

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