Corn, wheat and soybeans have had an enormous move following large production downgrades in the latest WASDE report. I am very glad that I wasn’t short — I wasn’t in these markets at all. The maximum daily price move in these markets is limited by the exchange; if the price moves to the limit and looks like moving further on the next trading day, nobody will be prepared to sell at the current price, but buyers cannot buy at a higher price because of the limit. Consequently, not very much volume goes through and the market is “locked limit-up”. Even a small trader might not be able to get out, although there is a small number of trades happening. IG Index has gone to telephone dealing. If anyone is interested, the price limits are here.
This is all part of the game, but it’s the first time I have seen it happen. The limits are so wide in these markets that a limit move is pretty unusual. Here are some daily charts:
I did short corn earlier in the week, and I knew that there was a WASDE report coming out today. This is the second time I could have been caught on the hop (the first time I didn’t trade because the report was coming). Happily I was stopped out this time around, but it could have been a lot worse. I think I will add to my trading rules: never, never, never trade ahead of a WASDE report.