CROPS

The wheat market continues its wild ride, with the price of a Chicago wheat bushel declining 95 cents from its high at $9.47 in two trading sessions July 23 and 24, followed by 66 cents up and 29 cents down into Tuesday morning (and more volatility ahead).

The heat and drought in the Midwestern U.S. has reduced the corn crop by something like one-third. The weather has moderated a bit, but the decline in crop condi- tion ratings continues. Corn and soybeans in the Western and northern corn belt (Minnesota, North Dakota) have escaped the trouble to date, but are now declining. Seri- ous weather stress over 40 percent of the Midwest and 33 percent of the Delta are expected to expand to 50-66 percent respectively next week, given current forecasts.

It is not just the weather, cooking the corn and soy- bean crops in the U.S., although that is the lead factor. The "outside" markets are having a big influence as well. Every time the U.S. dollar rises, U.S. produced grain becomes more expensive to importers around the world. Global demand for grains still depends on a stable system for payment, shipping, handling, storage and processing. When international banking and exchange is shaky, so is that system. Fears of being caught short of supply, or holding inventory and unable to unload, surely causes unusual decision patterns by business, which translates into volatile prices for many commodities. It is a tough environment for any trader.

Volatile and extreme markets, no matter whether it is wheat or stocks or antiques, make keeping perspective difficult. What has been "normal" for a long time, i.e. 15- cent daily high-low range in per-bushel wheat prices, is replaced by 15 cents per hour and a 50-cent range. In this environment, the price of a bushel can move more than a dollar in two or three days. A wheat producer can sell in the morning for what appears to be a great, profitable price, and then watch the level move up (or down) 50 cents in the afternoon. This may give rise to jubilation, but often causes much mumbling and second-guessing. The trend is still upward, but the change, when it hap- pens, is likely to be swift and difficult to see coming.

A new popular phrase is emerging in the analytical lexicon: The "Black Swan Event," a phrase associated with very large magnitude events in history that are un- predicted and that have a large impact on subsequent events. There are some who believe we may be witness- ing such an event in the grain markets and express price potentials that are unheard of (wheat in the $15 per bushel range?). This may be so, but how much are you willing to bet on such a low probability idea? In the past, the farther any market moves from "normal" the easier it is to project still greater extremes. When this summer of drought and loss for corn and soybean farmers is in the books, there will still be a market that works hard every day to bal- ance supply and demand, and there will be another crop coming along shortly. Meanwhile, remember what the dormouse said, "Keep your head."

Information and opinions contained herein come from sources be- lieved to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/ or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.