Market Perspectives August 2, 2013

Chicago Board of Trade Market News

Outlook: Favorable weather forecasts and the collapse of soybean futures were two primary factors influencing this week’s decline in corn prices. The decline in corn futures was far more orderly than the decline in soybean futures, but there was still substantial erosion in the corn basis. Additionally, beneficial to end-users, is the fact that they now have the December 2013 to December 2014 contracts offering them an average price below $5.00 per bushel.

Price action of corn contracts seems to indicate there are plenty of end-users who are meeting the current sell-off with tactical purchases. Scale-down buying was implied on Thursday, as the September contract sold off an additional 12 cents, while the contracts from December on out sold off less than 2 cents. The December 2013 contract seemed to have support around $4.75 per bushel.

Experienced merchandisers recognize that speculators have built a sizable short position, and some of them have price objectives of $4.50 per bushel or lower. However, seasoned market participants have been around long enough to recognize that many of their speculative counterparts could reach a price objective only to discover that there is no one at that location who is willing to accept the other side of their position.

As was noted last week, weather is presently the dominant factor influencing grain prices. However, there is also the impending approach of the important August 12 reports from USDA. These reports will be discussed more next week. The outlook is that grain prices will begin to carve out a trading range for the next few weeks.