Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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June 4, 1999

Volatile Summer Markets?

"The bears win!" said one market analyst early in the week after prices dropped on Tuesday following the long weekend. Prices' breaking below lows set in February appears to suggest that prices are headed lower. The crop is getting planted. Corn ratings are excellent. More acres may go to soybeans. This points to the possibility of corn prices below $2.00 and soybeans in the low $4.00 range. Will they go lower? How low will they go? No one really knows, but last year's hog market reminds everyone that very low prices are possible.

"How will you handle the summer rally?" was a question posed by another analyst -- illustrating that not everyone is completely bearish. The markets are entering a "weather market" period when the effects of weather on production may get more attention than the large ending grain stocks. The later plantings will be subject to more weather risk in late July and in August when hot temperatures and drier conditions are the norm. The markets have been in a downtrend for more than two years and will change sometime. With prices this low, the bears don't want to get caught. Those short the market will buy quickly at any sign of weather problems. This buying could quickly set off a summer weather market rally!

This situation creates a potential volatile market that may have already started. Corn and soybean futures gapped up last Friday prior to the 3-day holiday weekend on the possibility of hotter weather. They gapped back down on Tuesday with prospect for rain. After two days of lower trading (but closing in the high end of daily ranges) they gapped higher again on Thursday. This kind of price action, after a long period of generally small trading ranges in a downtrend, suggests the markets are becoming more volatile. Weather news may result in sharp prices moves up or down.

This creates two major risks for producers in the coming weeks -- production and price at harvest. Weather risk, while affecting the markets, also affects production and what will be available to sell. "Pricing what hasn't been produced yet, is always a worry if the weather is dry!" However, concerns about production can cause marketing opportunities to be missed! If weather scares are short lived and crop production is good, prices are likely to continue the present downtrends into harvest. Remember the corn crop is starting off with very good ratings nationwide.

The marketing challenges in the next few weeks will be balancing sales of grain, that must move at harvest time, with expected production and being in a position to avoid the potentially very low fall prices. Weather rallies may provide volatile prices along with marketing opportunities. The opportunities may be limited because the negative fundamental factors are likely to keep a lid on rallies. Flexible plans and being able to react quickly is the "name of the game." Don't forget that while volatile markets quickly shoot upward, they can also drop like a rock! -- Melvin

University of Missouri ExtensionDecisive Marketing - June 4, 1999 -- Revised: April 20, 2004