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Grains at a crossroads?

Agriculture.com Staff 01/06/2010 @ 8:44am

Grains seem at a crossroads now, with corn running above recent highs and making the bull market look alive and well. Soybeans and wheat have shown recent strength, but neither of these 2 markets is sporting a typical bull market look to it as neither has higher lows in. Instead, both so far look like a strong recovery, but not yet an indication of a bull market emerging.

It may just take some more time, as both markets could push higher if the right news came along. Many were expecting the funds to become strong buyers of grains in the near term. But so far in January they have not shown up in the droves that were expected by many.

Today we may be at a crossroads. The market will have to tell us in one way or another whether we can get that bullish slant to get over the hump or if we trickle down in price. Speculators seem to be pushing the market higher recently, especially corn. And the expectation is that speculators will continue to drive this market higher, especially with hedge funds rumored to need to buy grain futures in the early part of the year.

Corn, while exports are doggy, is showing signs of increased feed use from the sheer fact of very cold weather hitting the Midwest. Livestock in cold weather generally eat more, and with all the snow cover it makes it more difficult to graze cattle across the winter wheat belt. That could mean additional feeding of corn to cattle across the U.S.

South American weather is going just fine for now, with temps a little cooler than normal but mostly adequate precipitation. If anything, some areas are getting a little too much precipitation and is hurting the completion of planting. But for the most part, the crop has been planted. Now we'll be looking at the growing season for finishing up the crop size.

U.S. crop sizes are still somewhat of a question as USDA gets around to issuing the final crop sizes in their Jan 12 report. They'll also issue a winter wheat planted acreage report, with estimates of much lower winter wheat acreage in the U.S. this year. There may be some surprises in this report, and that could help dictate price direction from here. With about 500 mb of corn still left in fields, it will be interesting how USDA deals with this conundrum. Do they reduce yields since some corn is socked in for the winter?

Pro Ag notes that prices keep rising, pushing prices much above the APH based crop insurance price levels established this fall. APH price levels are set at seemingly low levels with wheat $4.80, corn $3.55, and soybeans at $8.55. The new crop futures which set revenue prices are currently trading at around $6 HRS wheat, $4.40 corn, and $10.20 soybeans. These prices are much higher than the APH determined price last fall, and may be telling us something about price levels. They are mostly pretty decent for making some 2010 sales, with prices now at profitable levels for almost all areas of the country.

Whenever a profit can be made, usually it means these are pretty decent places to start selling something. These high prices may at some time mean trouble for end users, who recently haven't had to pay as much for grains. So we seem to be waiting for some price action to determine the fundamental picture of where prices should go from here. But one thing seems certain. Selling on this bout of price strength is likely to set a profit level of some kind for virtually any crop for most producers in the country.

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