December 12, 2007

 

More volatility in future as bull run on US grains continue: ADM analyst

 

 

As US corn, wheat and soy prices hit record or near-record highs, a leading market analyst said the markets in the future would be more volatile even as prices for the near term remain "fairly firm".

 

ADM Investor Services Vice President Steve Freed based his outlook on expectations for a strong world economy, weak US dollar and the fact that global consumption of grain outpaced total planted acreage for the first time ever this year.

 

Freed spoke at the National Grain and Feed Association's 36th annual Country Elevator Conference Monday.

 

For the rising volatility in the market, he pointed to the changes in futures trading recently made on the CBOT. 

 

"The CME Group is considering increasing daily trading limits to a higher percentage than our 50-cent limit in beans, 20 cents on corn and 30 cents for wheat," he said.

 

The CME Group (CME) owns the Chicago Board of Trade.

 

"The CFTC (Commodity Futures Trading Commission) is also considering adding to the limits which funds can have on their positions," Freed said. "We're now seeing more people than ever before trade our (grain) markets, who know nothing about our fundamentals."

 

Freed said to Illinois farmers the present time is likely being considered "the golden age" of agriculture, with the market offering them US$4 for their corn, US$7 for their wheat, US$10 for their soy, and as much as US$7,500 an acre for their land, for the first time ever.

 

"A few of them are selling it, but most of them are still bullish," he said.

 

Freed warned that strong weather patterns produced by unusually cold Pacific Ocean temperatures, known as La Nina, could also add volatility to the market, by producing a bias toward drier than normal conditions across the central/northern Plains and central/western corn belt -- plus parts of South America -- in 2008.

 

"Short-term, soy prices should be higher," Freed said. "These past two weeks, most of the traders left in the pits at the (Chicago) Board of Trade are buying US$13 calls (options) at 34 cents, just in case it gets dry in Argentina. That would take out the 1972 highs."

 

He added if energy prices remain high as expected, buyers' perception of cheap corn would be vastly different from what it is today.

 

Freed estimated that after market prices reached all-time record highs, spring wheat, white wheat and hard red winter wheat, "are probably close to 90 percent  sold-out by the farmer.

 

Fred suggests prices of new-crop wheat would be  reaching its peak at current levels, if normal weather prevails in 2008."