October Grain Rally, What Now?

Many futures traders were surprised by October's grain rally. Despite record crop size in soybeans and corn, both new-crop corn and new-crop beans rallied over 15% last month. Speculators are still scratching their heads, searching for a reason for the rally and wondering how to position themselves ahead of Monday's USDA report.

Several reasons have been postulated for the rally. Some analysts suspect a large speculative short position was forced out of the market, leading to a month-long short-covering rally. Other conspiracy theorists point to the fact that the prices for crop insurance/revenue protection policies are priced based on the average October price; a higher average price means a smaller bill for Uncle Sam (and a smaller check for Farmer Joe). While these theories are unproven, logistical tightness in rail transportation, a slow US harvest and stronger than expected demand for soymeal and soybeans can be credited with driving prices higher. (more)

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