Commodity markets react violently at times. Yesterday was one of them: The USDA (United States Department of Agriculture) reported on Monday that the U.S. increased production for both corn and soybeans.

When it comes to the grain markets, USDA reports are viewed as the "bible." Farmers, grain merchants and exporters follow these predictions and plan their business decisions on these government reports.

For this crop year ending August 31st, the USDA predicted an increase in corn production of 21.4% to 1,790 million bushels and an increase in soybeans of 9.8% to 225 million bushels.

Before the market opened Monday, traders had expected just the opposite, that corn and soybean production would drop because of the late harvest. By the time the market closed, March corn futures were down 30 cents or $1500.00 and March soybean futures fell 83.50 cents or $4175.00 (each 1 cent equals $50.00).

Soybeans may recover a bit quicker than corn because the U.S. is a net exporter of soybeans to China.

If there is one lesson for the trader it is this: "don't take a position going into a major crop report." Surprises can be very painful and costly, especially if a trader long these markets Monday.

I wonder now, should food prices drop?

Sharp drop for corn and soybeans as production increases originally appeared on BloggingStocks on Tue, 13 Jan 2009 12:15:00 EST. Please see our terms for use of feeds.