HH Agriculture Commodities Outlook - Improving Risk To Reward

Agriculture commodity prices have dropped substantially this year. The agriculture commodities consist mainly of the grains, livestock, and softs (food).  Some commodities like corn, lean hogs and cocoa had their moments in the sun this year.  Now, most of the agriculture commodities are firmly entrenched in downtrends.

The good news is that I suspect many of these commodities could have a brighter future going forward and the prices are now at relatively low levels.  Adverse weather and favorable trade negotiations with China open the opportunity for the markets to reverse from bearish to bullish. 

Grain / Oilseed Complex

The corn, wheat, and soybean markets have caused a great deal of stress for some traders this season. This has been an interesting year for these crops. The Midwest suffered from a very wet spring when farmers were planting crops – or trying to plant their crops. This created a situation where the crops, especially corn, were put in the ground later than normal. A late crop often leads to a smaller crop as quality suffers and not as much acreage gets planted. The biggest threat is an early freeze while the crops are not mature enough to handle the stress. That is a possible scenario on the minds of grain traders right now.

Since the crops were planted later in the season than normal, most farmers, analysts and traders expected substantially reduced acreage and yields this year for corn and soybeans. The USDA released their monthly crop estimates on August 12th, which lowered the numbers but they were far off market expectations. This caused a severe drop in grain prices. 

ProFarmer conducts a crop tour every year to get an independent view of crop production and yields. They actually walk a sample of farms across the Midwest to inspect the quality and quantity of crops. Many traders didn’t believe the crop estimates from the USDA earlier in the month and they thought ProFarmer would have more realistic estimates. Their final results were released on August 23rd and they did lower estimates, but not by enough to have a big impact on prices.

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Disclosure: Past performance is not indicative of future results. Futures trading is not suitable for all investors. The risk associated with futures trading is substantial. Only risk capital ...

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