The Heat is On. Strong Dollar Trend no Match for Grain Supply Crisis-- July 16, 2012

There is no shortage of news describing the severe drought taking place in the heartland that has propelled front-month corn from a 551 low in early June to a recent high of 794. If you missed the boat, you are not alone. As of last Tuesday, July 10, "managed funds" were net long 124k contracts which is about 250k short of the record net long established in Sept. 2010 according to Hightower Research.

Recent news includes the state of Nebraska ordering over 1000 irrigators to stop pumping water from rivers and streams until conditions improve.

There was a brief time last week after forecasts for lower temperatures provided an opportunity to purchase new crop corn below $7.00. This did not last long as hot weather came back into the picture.

If you are looking to get on board as a speculator consider buying new crop corn, selling calls and buying shorter dated puts. (see today's Hightower ag research). Producers with crop to hedge may consider selling calls and buying puts to frame the range.

My last blog post mentioned the technically strong US dollar may continue to pressure a broad downside move in US$ commodities. Silver and gold followed suit and are hanging just over a technical cliff. This is a trend that is important to watch. The fact that the Euro deposit facility interest rate is now at 0%, more European banks with excess capital will begin looking towards the U.S. for yield.

This is an economic environment that is not friendly to high prices in US$ products. Demand is anemic and rationing is becoming more commonplace as we saw last Fall in the feed sector. Don't fight the current trend higher in grains, but continue to monitor the US$ and strength in fixed income.