With grain prices having been so strongly linked to demand decay and poor economic performance lately, grains continue to show weakness in the price complex. I fully expect to see a stout rally in the grains sometime this winter, but today, prices continue to show weakness. We should keep in mind that Congressional mandates for the 2009 season require that nearly 50% of all domestic corn production be used for ethanol, an amount significantly higher than it was for 2008.
This price weakness for grains (corn and soybeans especially) is significant because farmers may decide to significantly cut production next Spring if prices remain at these levels. Current corn and soybean prices are below farmers' production costs according to recent reports from analysts, so either the supply will diminish at these prices levels (as farmers cut production), or perhaps demand will rise. Typically, however, during an economic slump, demand remains soft for commodities, thus suppressing prices. Still, food commodities tend to establish very firm bottoms and move higher while other commodities like industrial metals continue to fall. After all, we still have to eat even when industrial production slumps!
