With summer just beginning, I’m forecasting plenty of activity for July and August grain and soybean markets.

Soybeans, corn and wheat futures have been extremely volatile over the past few months. This creates opportunity. But the risks are higher, and trading is more difficult. Prices of soybeans and corn hit record highs last week but registered weekly reversals to the downside for the first time since March.

A weekly reversal occurs after a market trades into new, high ground and then closes lower on the week. The last weekly reversal in soybeans--during the week of March 3--resulted in a gut-wrenching $4.50 per bushel ($22,500 per contract) correction that eventually turned into a premier buying opportunity. Will history repeat this time?

We all know about the devastating floods in Iowa and its neighboring states, which will result in lost acreage and lost crops. However, history tells us markets can top out when all the bullish news is in the public domain. On the very day November 1993 soybeans topped out, Newsweek ran a cover story picturing a flood victim up to his neck in water. The market traded lower for the rest of that year.

But it’s certainly not 1993. At that time, there were less than 6 billion people in the world. (The global population didn’t pass the 6-billion mark until 1999). Earth News estimates the world’s population passed 6.6 billion just last month and that, by 2012, there will be more than 7 billion hungry mouths to feed.

Plus, people are eating better. For many decades now, 1 billion of the earth’s human inhabitants consumed two-thirds of the earth’s developed resources. The other 6 billion got by on the remaining third. Now, led by China and India, the developing world is eating better and living better. And this requires massive commodity consumption.

More corn and soybean meal is needed to feed growing populations of pigs, chicken and cattle. Soybeans, rice, sugar and corn are necessary for both food and fuel. So, in a macro sense, higher food prices over time are justified as the world adds 80 million new hungry mouths each and every year. But what about the short term?

Here’s the bear argument. Prices are historically high. High prices ration demand and result in lower prices, right?

Because of high corn prices, the number of cattle placed in feedlots last month fell 19 percent, a trend that’s expected to continue. New data released June 20 indicate the number of cattle on feed is the lowest in more than three years. This, of course, reduces corn feed usage.

Then there’s ethanol demand, which was supposed to count for a third of total corn usage this year. Because of high corn prices and lower profitability, there’s speculation ethanol producers will cut back on usage.

There are already newly constructed plants that were supposed to open this month, but they remain closed. Corn usage for ethanol was expected to rise 1 billion bushels this year to a record 4 billion. If that doesn’t take place, what’s the real reduction in usage?

There’s also the possibility of new legislation, which--if passed--will reduce the flow of speculative money into commodities, allowing for easier importation of Brazilian ethanol.

Here’s the bull argument. Recent flooding in the central US has reduced both yields and acreage. Iowa’s agriculture secretary, Bill Northey, said June 21 that flood damage to Iowa crops alone could reach $3 billion: Ten percent of our corn has been flooded out or not planted and about 20 percent of our beans.

Both China and Japan, recovering from earthquakes, will remain major soybean importers for years to come. The weak US dollar creates attractive pricing for export sales. There’s even talk that China, the largest corn exporter in Asia, may actually turn into a corn importer later this year--the first time in 13 years.

Even today, 5 to 10 percent of intended soybean acreage has yet to be planted or will need to be replanted. According to the US Dept of Agriculture (USDA), after June 20, farmers can expect to see up to 50 percent yield reduction on these late planted beans. For corn, that 50 percent yield decrease date has come and gone.

There’s unknown weather ahead of us, with the critical pollination period for corn not due for another three to four weeks. In fact, because of later planting this year, brought on by the spring rains, many growing areas will experience pollination a week or 10 days later than normal. And that spills right into the potentially hot month of July.

If the weather is too hot during this critical development stage, fewer kernels of corn grow on the cobs. Therefore, an already tight supply situation is further exacerbated. However, the weather could be perfect for the remainder of this growing season. But based on erratic weather to date, can we really count on it?

Regarding that decrease in corn usage by ethanol producers, recent estimates report that usage will decrease by 200 million to 300 million bushels. The lost supply from 3 million to 4 million fewer corn acres is much greater: 300 million to more than 500 million bushels.

There’s still time to get another 2 million acres of soybeans planted, albeit with lower yield potential. (However, it’s too late to plant corn now.)

The bottom line: The floodwaters are receding today, and planting/replanting soybeans will proceed over the coming week. A lot of speculative money has entered the grain and soybean markets over the past few weeks, and some of this money will exit.

My assessment: Barring another round of tough weather through the remainder of June, it appears that the markets are in a correction phase. However, I’d be surprised if the ultimate high prices are in place for this year at this time. In other words, this correction should be viewed as a buying opportunity, particularly corn, which already suffers from tight supplies and can’t be totally replaced--regardless of weather.