Corn and Soy Bean Prices are Headed Lower…for Today
Watching the price of grains lately has sort of been like riding the Scream Machine at Six Flags Great Adventure, up, down, up down. We started off on a huge bull run with the price of corn, wheat, and soy beans hitting record levels...not just hitting records, shattering them. For goodness sake, prior to this year spring wheat futures had never traded over $7 per bushel and they have been trading in the $20s.
Then all of a sudden wooosh, someone pulled the rug out from under the prices of most commodities, like oil, natural gas, grains, metals. They all tumbled. We're talking 5% to 10% per day.
Just when things looked like they were going to get really bad in grains for bulls, the farmers strike in Argentina started to make the news. This definitely is an interesting turn of events. I am very curious to see who caves in first, the Argentinean farmers or the government. Chances are that this is going to get ugly. As one would expect would happen after a supply disruption like this, the price of soybeans started to go wild. Corn is being impacted as well and it went up along with soybeans.
About an hour ago the rumor that the Chicago Board of Trade is going to raise its margin requirement for corn and soybeans was confirmed. Although I haven't seen anything in writing yet, I heard on CNBC that they are going to increase the margin requirement on corn by 50% and on soybeans by 50%. If this is the case, a number of traders are likely going to sell and wel may see the price of grains drop again today.
Long term though I am very bullish on grains. Any drop in price that is caused hedge funds and other traders unwinding positions as a result of the new margin requirements is probably a good buying opportunity. The reasons behind why the prices of grain are increasing, like the ethanol boondoggle, increasing demand from emerging markets, and now the strike in Argentina, still remain. And this isn’t even taking into account the possibility of a drought in the U.S. this summer. If the weather is unfavorable, the prices of grains are going to explode.