Weekly commodity wrap-up

Crops planted with half of U.S. acres in drought

A virtual explosion in corn, beans, wheat and oats occurred at week’s end after making a dramatic upward u-turn on Thursday. The buying was based on hot, dry weather in the Eastern Corn Belt and dire 10-day forecasts of more to come. Blistering heat in Texas and Louisiana, along with plenty of reds and oranges on the U.S. Drought Monitor map, drove grain users and investors to suddenly become aggressive buyers. The three-day weekend for Juneteenth might have magnified volatility, as buyers rushed to get what they could while markets were still open.

Some analysts warned that this is a weather rally, not a demand rally. Our U.S. soybeans are a full $1 more expensive than Brazil’s, so a turn in the weather could trigger a fast downward correction. China is now buying their corn from Brazil, providing more evidence that the spike in prices is based solely on supply and not demand.

Natural gas and diesel take lead upward

Crude oil prices rose slightly through the week, due partially to Saudi Arabia’s efforts to cut production. However, products of heating oil and diesel fuel saw bigger upward action. Natural gas rose to the highest level since May 25, as surplus inventories have been declining. New heat could create increased demand, as natural gas is used to generate electricity for air conditioning. Improving macroeconomic conditions also might have produced better global demand.

Weekly winners and losers

The big upward winners were corn (up 60 cents per bushel from last Friday), soybeans (up 70 cents) and wheat (up over 45 cents), with soybean oil rallying about 7 cents per pound. Natural gas rose 30 cents per 10,000 MMBtu. Heating oil went up 12 cents per gallon. Hogs rose about 7 cents per pound. All the stock indexes went higher on the week compared to last Friday’s close. The U.S. dollar dropped about 2 cents from last week.

Words of wisdom

(What advice would you give the novice trader?) “First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half.” — Bruce Kovner in Jack Schwager’s Market Wizards.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.