By Carrie Muehling
NORMAL – Grain markets have been in a downward trend over the past few weeks on ideas that the 2012 soybean crop was bigger than expected and the South American weather forecast had improved.
Some of the build up that occurred during the height of the drought has now waned and a general speculator liquidation has occurred. The markets are now entering a seasonal period, and historically when the market trends lower into Thanksgiving it will often trend higher into Christmas, and vice versa.
“The market is at turning point in here where positive news could surface as traders become buyers instead of sellers as we kind of move into year end positions here,” said Curt Kimmel, commodity broker with Bates Commodities in Normal.
South American weather will continue to be a focus as that area is approaching 65-70 percent complete on planting progress. The weather pattern there will become more dominant news as they wrap up planting and get into the heart of the growing season. The supply/demand balance sheet is historically tight going into this spring, but most believe a large South American crop will be enough to alleviate that next year. However, world is counting on that huge crop out of the southern hemisphere.
“The trade has priced in a fairly large South American crop, so any weather disturbance in the southern hemisphere can bring back some buying interest as end users want to get coverage in place due to the idea that maybe the crop is a little smaller than originally thought,” said Kimmel.
The January USDA report will be the next one with important numbers, including production, WASDE, supply/demand and harvest totals. Then the focus will go back to South America and the March planting intentions this spring.
In the meantime, the economic situation and the fiscal cliff continue to be of concern, as well as potential changes in the tax code.
“When you start changing the pattern we’ve been in for a while and creating uncertainty, investors become real cautious. We’ve got a lot of investment money in the commodity sector and we’ve got a lot of investment money in the stock market sector. When you start seeing winds blow in that there could be a change, people become very uneasy and that’s why we saw some liquidation occur here over the last couple of weeks on speculation that things could change,” said Kimmel.
Kimmel believes it will be very important for policymakers in Washington to come to a quick agreement on what the scenario will be for the future so people can be more comfortable. Worldwide demand has been robust but it is starting to dwindle based on suffering economies. Typically the market is quiet during this holiday season, but subject to surprise.
“We’ve gone through these markets here where you could hear a pin drop, but whenever you get everybody comfortable and expect the market to be quiet, something can happen to create a very volatile mood,” said Kimmel.
The Friday after Thanksgiving is typically quite active. Unrest in Middle East could also move the market one way or another.
Carrie Muehling can be reached at email@example.com.