Commentary: Commodity funds, crude oil step aside as weather drives markets

by Ron Sterk
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Corn, soybean and wheat futures prices have been as volatile as ever in the past several weeks, but rather than point to commodity funds, crude oil moves or the weak dollar as the root cause, the most basic of fundamentals – weather – has been the driving force most of the time.

Case in point – July 2009 corn futures hit a record high over $8.20 a bu and soybeans were nearing $16 a bu on June 26, both up sharply over concerns additional rainfall in the Midwest could further damage corn. To be fair, spiking crude oil futures and a weaker dollar also were cited as factors pushing prices higher for the day.

The unusually wet, cool spring set the stage for a "weather market" for the entire growing season for corn and soybeans, and to some extent, winter wheat harvest. With planting dates pushed later and later, the critical pollination window for corn and the bloom and pod set stages for soybeans, also have been delayed, into what normally are hotter, drier days of summer. For corn, pollination is expected to be delayed about two weeks, into late July-early August, with a similar delay for soybeans, into early- or mid-August. Late plantings also mean crops will mature later, which increases concern frost may nip yet unfilled corn kernels or soybean pods, with an early frost especially disastrous. Additional heavy rainfall in late June and early July also could be detrimental to some crops if flooding persists.

But as hard as nature has been on agriculture so far this year, it may relent before the season goes much further. Weather forecasters generally are calling for a relatively mild summer, which should reduce stress during pollination and pod set. There also is some agreement that a wet spring-summer generally is followed by a later, rather than earlier, frost, which is just what crops will need. Further, because of the long period over which corn and soybeans were planted, actual pollination, bloom and pod set will be spread over a longer period of time than normal, which will reduce the impact of hot, dry weather somewhat.

The later plantings and slower development most certainly will have, and already have had, a detrimental effect on corn and soybean yields, which means smaller than expected crops in a year when there was little "wiggle room" between supply and demand.

While commodity funds, crude oil and the value of the dollar will continue to influence grain and oilseed prices, traditional traders at least for this season may again experience a fundamentally-based market, even if it is less than friendly to processors on the buying side of commodities.

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