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An old rule!

Agriculture.com Staff 03/07/2008 @ 3:07pm

I was at the Commodity Classic in Nashville last week. Farmers there were concerned about grain prices being too high for the long term best interests of farmers.

Of special concern was the action in the spring wheat market where prices were extremely volatile as the March contract went into delivery. It seems as if everyone was assuming that soybeans and corn were likely to follow the lead of wheat, as 2008 production is still an unknown. But, demand is for more bushels than are likely to be produced in the coming growing season. A common thought was that every sale that had been made in the last year was wrong.

Even seasonal trends which I have followed for the past 20 years pointed to the rally continuing. The historic trend for both grains is to see prices rally during the month of March. The likelihood of the highest price of the marketing year being in February is so small that I have had a rule that says sales should never be made in February.

Last year it appeared that market action would prove my theory to be wrong. Strength early in February was followed by a sharp retraction in prices the last week of the month. Prices dropped when they normally rise. Dry weather in Illinois during the early part of June resulted in a rally that took corn prices back into the area of the February highs. Depending on which prices you look at, the June rallies were slightly higher or slightly lower than February highs. Old crop futures did not quite make it. New crop futures fell just slightly short. However, at my local elevator the June 15 cash price of $4.01 was two pennies better than the February 22 price. This was partially due to a big basis improvement. The February high in soybean futures was exceeded later in the summer by a considerable amount.

The rule appears to be proving to apply this year by one day. The February price improvement was one of the most impressive rallies in history. Action since Monday certainly looks as if the highs are in, at least for the short term. If that is the case, the high will have been on the first trading day of March. There is still a lot of time for prices to rebound. However, prices could drop thirty percent from the recent highs and still compare favorably to other historic highs in soybeans. In the corn market recent highs were in the same general price range as the old highs in 1996.

If you still have grain to sell, a fifty percent rebound back to the highs is a good target. There is no guarantee that there will be that much recovery. However, remember that the whole growing season is ahead. There is plenty of time for a weather problem to develop. It could be like last year’s rally which was simply a scare. It could be a full blown bull market caused by real weather or other production problems.

I was at the Commodity Classic in Nashville last week. Farmers there were concerned about grain prices being too high for the long term best interests of farmers.

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