Grains Look Great Into 2012

 | Dec 20, 2011 | 1:03 PM EST
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Corn, soybean and wheat futures prices on the Chicago Board of Trade have taken a beating in recent weeks. Corn prices are down around 25% from the all-time high of $7.99 3/4 a bushel scored in June. Soybean futures prices are down 20% from the September high of $14.65 a bushel, and soft red winter wheat futures prices are off around 30% from the February high of $8.93 1/4 a bushel.

The grain markets have been held hostage by 'outside market' forces that have mostly favored the bearish camps in the past few months. The U.S. dollar index has appreciated in value during the last half of the year, which has been a major bearish underlying factor for the grains. The U.S. dollar index is a basket of six major currencies weighted against the greenback. The stronger dollar has not only driven away speculative investment demand for the grains, but it has also made grains, which are priced in U.S. dollars, more expensive to purchase with other currencies.

The recently shaky U.S. stock market has also taken away investment demand from raw commodity markets, which are considered by investors to be 'risk assets."

Ongoing turmoil in the European Union regarding its sovereign debt crisis and efforts by China to curtail its voracious domestic demand for raw commodities are other bearish demand-side fundamentals that have pushed grain futures prices lower in recent months. On the supply side, a better-than-expected harvest of U.S. corn and soybeans this autumn also lent selling pressure to the grain futures markets.

However, with the grain markets now pounded down to price levels not seen in one to two years, the grain bulls are starting to sense major market lows are now in place and that present price levels in the grains will turn out to be value-buying opportunities.

Another bullish fundamental factor that has just been added to the grain market mix is unusually dry weather in major South American corn and soybean growing regions.

The grain market bulls have been correctly arguing for months that the overall world supply and demand balance sheets for corn and soybeans have been tilting toward the bullish camp for quite some time. With the U.S. economy now showing some increasing signs of vigor, with notions that the worst of the EU debt crisis is now past, and with China still being a commodity-consuming behemoth, it's likely the grain markets will rebound in the first quarter of the new year, or even enter into solid price uptrends and bull markets by the middle of 2012.

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