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You don't often see these moves in commodities, but when they happen, look out below. Two days ago, September wheat closed "limit up" -- 60 cents. That means that the market stopped trading. You could not enter a buy order.
On Friday, just the opposite happened. Wheat fell the daily limit of 60 cents. September wheat closed at $7.25 3/4 per bushel. A "limit down" move means that the market stops trading. At that point you cannot enter a sell order and are locked in. On Monday, if the market opens lower but not limit down, you can sell out but at a big loss.
What caused this abrupt turnaround? Two days ago Prime Minister Putin said that Russia might halt exports as early as next week, with the ban lasting through December. The reason given was the severe drought conditions in Russia. That drove the market haywire for two days on the upside. On Friday, First Deputy Prime Minister, Igor Shuvalov, told Reuters that Russia will honor its current grain export obligations only after the harvest is completed and the crop situation is more clear.
Two global suppliers did cancel deals to ship 65,000 tons of Black Sea wheat to Bangladesh after Russia curbed grain exports. Barclay Capital's Sudakshina Unnikshnan said: "if you see a lot of exporters declaring a force majeure, that's likely to spook the market a bit and if you see neighboring countries like Ukraine and Kazakhstan putting any similar restrictions in place, I think that you could add further fuel to the rally."
Commodity markets often turn on a dime. This is a classic case where rumors and statements caused an abrupt turnaround. You can bet there are traders and investors on both sides of this market suffering huge losses.
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Reader Comments (Page 1 of 1)
8-08-2010 @ 6:16PM
rick said...
I think such speculation stinks - it undermines the stock market and makes it hard for regular investors to save for their retirements.
If I were "king", I'd ban such speculation, along with day trading, derviatives, hedge funds, and a bunch of other "crap" that takes place in the stock market these days.
In the meantime, it pleases me no end to see the speculators lose their financial backsides!