Nervous Speculators

8-15-07, 8:40 am,

While I have discussed multiple times in my morning comments the vulnerability of the stock market and its potential to nervously influence speculator activity in the grain trade, we may now be approaching the point where this pressure is about ready to manifest its impact.

Open Interest has been steadily declining in the grain trade, not a good sign of a market's ability/desire to build a trending higher market.

The spec community continues to carry an unusually large net long position in the grains, despite notable price declines from the highs and weakening fundamental foundations. With harvest just ahead, don't we have the fundamental ingredients necessary to pressure prices? The commodity funds have underperformed expectations and there are equity reasons for investors to begin seeking redemptions; but with the overall investment community in withdrawl, won't that tend to further encourage those with limited experience in the commodity markets to reduce involvement before the end of the year?

There are three basic reasons people lose interest in the commodity market or reduce participation:
1) Equity drawdown,
2) Bull trends end and down trends begin,
3) Year-end desires to reduce exposure.

It seems that we currently have a situation where all of these factors are present and their focus may intensify.