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Corn/soybeans continue bullish ways

Agriculture.com Staff 02/21/2008 @ 11:26am

Last week, we asked the question if prices had gone high enough yet to make sure we produce more than we consume of all major crops. It appears the answer is no, as the corn/soybean market rallied to new highs this week.

Corn is now trading around $5.50/bushel for 2008 December, and soybeans are around $13.70. These prices keep on going higher, even though we've had a number of analysts that felt we topped these two markets as well. But things sure didn't look that way on weekly or monthly charts, and once again we have run corn/beans to new highs.

Farmer selling is becoming very thin, with many producers feeling burned by selling too early a long time ago - no matter how much you sold. The fact is any sale in the last 5 years or more was too early, and the best investment on the planet the past 18 months has been grain of almost any kind. This is increasing the potential in the marketplace, as speculator buying is not being offset much by farmer selling. Farmer "Hoarding" is occurring, just like in the early 70's, with farmers becoming more tight holders of grain. This increases the chances that price spikes will occur much like the 70's (or like HRS has already done this year), making it a very volatile atmosphere indeed.

We are right below the previous all-time highs in corn, the only real resistance left in any marketplace since both wheat and soybeans have run to new highs. One only has to look at the action in wheat once we broke the old highs around $7.50 to see the potential in the current market atmosphere. Wheat prices rose about 30-40% in the CBOT/KC markets, and much more in Minneapolis. And that didn't take long to do so as prices rallied that much in just a few months. If soybeans do the same once they broke their old highs at $13, we are looking at prices near $20 by spring planting! That's a scary proposition for any buyers in the marketplace.

That is not just scary for soybeans, but for virtually every other crop raised in the US. Corn, soybeans, and wheat account for about 85% of all annually tilled soil in the US. That leaves only 15% of the acreage for all other crops, and currently the big three (corn, beans, wheat) are bidding aggressively for new acreage. That means that dry beans, sunflowers, canola, flax, durum, barley, other vegetables all will have difficulty holding onto to current acreage mixes with a huge rally in every other crop.

Every potential buyer is running scared right now. Occasionally a buyer of specialty crops will try to scare growers by saying "...we're signing all kinds of contracts right now - we might not have anymore left". But this is really a false threat, and eventually all growers will realize this if prices keep rolling higher. Its an interesting situation, as specialty crop buyers cannot outbid the big three with their small acreage requirements, so they remain followers in the marketplace. Make no mistake, the corn, soybeans, and wheat markets are leading everything higher, as a rising tide for the big 3 is raising all ships!

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