Commodities' price declines continue in December after summer's highs.

We started December around 6.16 on March corn and quickly pushed down to 5.80. January beans, which started at 11.50 are at 11.00. March wheat has gone from 6.35 to 5.85.

From October's high, prices have dropped:

  • Nearly $1 for corn
  • $1.20 for wheat
  • $1.80 for beans

Large trend following funds made a lot of money on selling short and are now poised to begin their short covering buying not just to pay those handsome bonuses paid on month-end profits taken but the year-end profits.

Only 11 trading days left to balance their books before the fiscal year closes on them. There are several other issues that could lend to us posting a near-term bottom in grains and a late month and year-end rally.

WEATHER'S EFFECT

One of the issues is weather in South America. Brazil and Argentina are the second and third largest bean producer exporters behind the U.S.

Weather sites began to talk early fall of warmer and drier weather to that region from December through February, their key growing period.

October and November were wetter than normal, but like clockwork it's been turning drier since the last week of November, and the 10-day forecasts through Dec. 23 looks much drier as well.

This looks to keep traders nervous of a continued dry pattern and avoiding the short side while even adding some new long positions to build a weather premium.

LASTEST CROP REPORT

The second issue to support second half December strength is a turn in near-term negative outlook from last Friday's USDA crop report.

Last Friday's report raised ending stocks slightly on reduced exports and usage, but the early January report has the final production numbers for 2011. The fear is going to be production will come in lower as the government lowers the amount of acres harvested versus what was planted.

The market has felt since June that record flooding in the Midwest last spring took away 2 to 3 million acres and this will show up on this report. Of course, this would reduce ending stocks.