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More Risk Premium On the Way

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More Risk Premium On the Way

Ben Kasch

For the past two weeks, the futures market has been adding a lot of risk premium to prices, and the weather forecast continues to predict less than ideal crop conditions. In this week’s Bower Trading Market Strategy report, Ben Kasch said this week will be more of the same. “The weather looks threatening in the far western Corn Belt . The crops in this area are suffering and production is getting smaller,” he stated. “The adverse conditions are moving East, with parts of Iowa and Central Illinois making it onto the drought map.” He added that, in the eastern Corn Belt, the issue is too much rain, “We have guys who had had to replant 2 and 3 times, and now they are getting hit with heavy rain.” With these situations, he sees the market putting more risk premium into prices, “It could be a very volatile week.”

Over the weekend, parts of Indiana saw more heavy rain, with 2 and 3 inch totals. There is more rain in the Indiana forecast for this week, followed by several weeks of hot and dry conditions right in the midst of pollinating. Kasch said the market will be focused on the weather almost exclusively this week.

According to Kasch, commodity funds, which have been short the market all spring, are quickly changing their position. That will add to market volatility, “There is a lot of restructuring going on as far as funds go, and it will continue as long as we have these weather concerns.” He said the funds will not be comfortable holding their short positions with the chance of hot dry conditions in the middle of pollination.

For more market strategy information,  contact Bower Trading at 800-533-8045 or bowertrading.com.

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