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Published December 31, 2007, 12:00 AM

Volatile commodities market could be in store for today

Fasten your seatbelts. The final day of trading for 2007 could be a bumpy ride for commodities.

By: Ross Dolan, The Daily Republic

Fasten your seatbelts. The final day of trading for 2007 could be a bumpy ride for commodities.

Acting on market information that could signal a drop to historic highs for row crop prices, some area elevators stopped buying wheat and soybeans at the close of business Friday.

The temporary pullback was the result of market uncertainty caused by conflicting traditional and electronic price quotations, said Jon Proehl, manager of the Dakota Plains Ag Center in North Tripp. By his account, soybeans showed a five-cent decline in Chicago Board of Trade pit trading figures, but computerized trades showed beans plummeting 40 cents in the final moments of trading Friday, just a dime short of its 50-cent daily limit.

“Those two (quotations) should be the same price or within a half cent of each other. This is the first time that I could remember that the pit and electronic prices were that far apart,” he said.

With that great disparity, buyers decided to believe the higher electronic figures and suspended trading, he said.

It was a similar story for wheat.

“Winter wheat can’t go any lower in one day than 30 cents a bushel,” said Proehl late Friday, “and it did that today.”

Hitting one stop limit and nudging another suggested that further price drops might be on the way when the market opens today, said Proehl. That possibility stopped him and others from buying.

“Ultimately, the whole grain trade was confused going home (Friday),” he said, “because (the price drop) happened right at the close so there wasn’t any clarification.”

Proehl said that prior to Friday’s last-minute excitement, holiday market activity had been thin.

Proehl theorized that investment index funds, which became a big presence in commodities markets in 2007, sold a number of contracts at the last minute, causing the price drop.

“We just need to resume trading on Monday morning, and trust me,” said Proehl , “it will resolve it real quickly.”

If, in fact, there still remains a large number of unsold contracts similar to those that drove down prices on Friday, those prices also will be down when the CBOT opens for business today, believes Proehl.

If the price drop was an aberration, prices may be down just the few cents reported in the CBOT pit on Friday.

Soybeans were selling at $11.25 a bushel at the start of trading on Friday. The closing price is still unclear, said Proehl, “because I don’t have a bid. I don’t know which quotation to believe.”

The impact of investment funds is unclear at this time, but their effect on the market could be substantial, says Proehl. The volume owned by the funds are so large, the market “could get real ugly real fast.”

For Jim Morken, manager of the Mitchell Farmer’s Alliance elevator, stopping the purchase of some grain it was all about managing risk.

“Any time we see real huge moves there’s too much risk so we decided to pull back. We don’t know where the market’s going to go (today). When soybeans are selling for $11 to $12 a bushel, this is uncharted territory,” he said. “It makes everybody a little bit nervous.”

Morken said that a more likely scenario was that at the last minute “someone put an order out there that the market couldn’t support. If that’s the case, whoever placed that order is not going to be happy.”

The market, in an abbreviated holiday session, opens at 9:30 a.m. today and closes at noon.

Farmers remained philosophical about the change.

George Jaeger of Tyndall, District 6 director for the South Dakota Soybean Association, theorized the price drop is an attempt to increase soybean supply.

“I think that they need beans and they’re trying to scare a bunch of guys into selling, and this is going to do it,” he said.

“Right now they have a chance to sell before the first of the year and get the sale on 2007 (records), or they can sell after the first of the year and put the sale on next year.

“I would look for it to go down 50 to 75 cents then they’ll bring it back up a bit and people will start selling.”

Plankinton wheat farmer Paul Mayclin predicts a minor market correction today, “but then I’m an optimistic person.”

He believes the market is doing its job.

“We know there’s no cure for high prices like high prices,” he said.

High prices have slowed global demand for wheat to the point “that we won’t run out of wheat, which is what the free market’s supposed to do,” he said.

The market’s been one of the best he’s seen in his 30 years of farming, said Mayclin.

With corn, soybean and wheat prices high, Mayclin said each of the crops will be competing for acres.

“They still need spring wheat acres and it’s going to get bloody,” he said.