Prices on the international grains market.

How on earth are the prices determined on the international grains market?

Well this is a very interesting question and I wish the answer was simple:  I remember in one of my first economy classes at high school the theme of the lesson was the role of supply and demand in a market.  It was very clear from the discussion that in a perfect world it would be the forces that determine price.  If the supply of the commodity was higher than the demand the price would be forced down - while the opposite was also true where if the demand would be higher than the supply the price would be forced up.

Now we know we are not in a perfect world and these days all depend on the supply and demand and the market sentiment.  We have witnessed that over the last few years perceptions have caused very interesting fluctuations in the prices on the international grains market.

Recently in the previous week we have seen that there was a perception amongst traders in the world that the US weather in the corn growing area might be just about getting a tad too dry and it coupled to a real threat of hot and dry weather in the European and Russian wheat growing areas lead to a upward surge in prices and then after a little rain over a weekend the prices just came tumbling down when the perception changed again?

What is very interesting is that the seasoned traders all over the world would tell you that the basic an fundamental trade almost always would stand the test of time - as long as one does not run after the general perceptions and one does not run out of cash in the process.

Several people have over the years tried to look at so-called seasonal and other analysis but the real test is the basic fundamentals of supply and demand - and the perceptions as to the expected crop size and consumption in the market.

Short term effects on the prices however could be caused by almost every possible perceived cause or even rumours.  That lead to a "axiom" in the trading community that says:"Buy the rumour, sell the fact".

Therefore I am convinced that the prices of grains on international grains market would ultimately be determined by the real supply and demand figures in the world.

JD