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Grain bubble coming, analyst says

Agriculture.com Staff 02/11/2016 @ 11:46pm

While one market analyst sees a leveling point ahead for grain prices, others still see a strong corn and soybean market outlook.

James Bower, Bower Trading said, during a Chicago Mercantile Exchange media briefing, he sees U.S. grain prices in the early stages of a 'mini-bubble.'

"I think grain prices have greatly benefited from the low U.S. dollar. I think the dollar begins to go back up," Bower says. "We have to be a lot more cautious expecting higher prices from here."

As a result, Bower warns that producers should reverse their psychology of the markets. "Producers have been talking about how high prices are going to go. I think they should start worrying about prices turning lower."

The fly in the ointment is the market buying soybeans and wheat acres. Also, Europe's strong Euro versus the U.S. dollar will not last, Bower says.

"Everybody is so concerned about the economy in the U.S., I think the 'other shoe' is going to drop on Europe," Bower says. "Europe is already seeing real estate and sub-prime problems."

Jerry Gidel, North American Risk Management Services, is not so quick to throw corn prices under the bus.

"Yes, the USDA lowered feed usage in Friday's report. That was due to so much lower quality wheat being fed this year, and the early corn harvest in the South," he says.

Gidel adds, "The Europeans are buying products at such high value around the world, due to a strong euro vs. the U.S. dollar. I see demand staying high."

The corn market is building up an inflation mentality, and the markets keep finding reasons to go up, Gidel says. "I'm not ready to short-change this corn market. If producers have storage they should use it. There's no rush here to sell."

For soybeans, there still is a lot of uncertainty at this point, Gidel said. A big question yet to be answered is how many acres will be planted in Brazil, he says.

"I see Brazilian producers inclined to plant more. I know the Brazilian soybean yields were great last year," Gidel says. "But, even with an increase in acres, I don't think the market will go drastically lower."

Joe Victor, Allendale Inc., sees little room for error in the South American soybean production season.

"Although the current year's drawdown rate of U.S. soybean stocks is at 47%, lower than a three year average of 56%, the ending stock amount is still going to be tight. Plus, with fewer acres planted in 2007, all of this puts more pressure on South American producers."

Bower estimates Brazil's 2007-2008 soybean acres jumping from earlier estimates of six to seven percent, to eight to 11%, over last year.

The soybean market trading at its current $10.00 per bushel level is a different animal than $6.00, Bower says.

"The South American producer will see this as a trigger to plant more. $10.00 is a mark they see as sign to plant more," Bower says.

While one market analyst sees a leveling point ahead for grain prices, others still see a strong corn and soybean market outlook.

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