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Has sleeping bull awakened?

Agriculture.com Staff 04/08/2009 @ 9:33am

Grains markets have been nothing but disappointment to producers for the past 6 months, first bottoming in November and then testing those lows this winter to leave a very sour taste in many farmer's mouths. But recently, there have been a number of suggestions indicating the sleeping bull may finally be awakening as spring approaches:

  1. The world recession may be ending that has caused markets to be blas, this winter, and left such a negative imprint on all commodities and stocks this winter.
  2. World governments are getting more aggressive in trying to stimulate economies, led by the US which has been aggressively fighting recession/deflation by both monetary and fiscal stimulatory policy.
  3. Grain demand is stronger than expected, with world demand improving (especially for old crop soybeans).
  4. Farmers are showing there has been supply disincentives for 2009, with US farmers indicating they will plant 7 million acres less in 2009.
  5. Extremely wet/cold spring weather patterns have developed that may present planting problems for spring planted crops. Typically, ideal yields are not achieved with late planted crops.
  6. Upside monthly reversals in December have been followed with monthly and weekly upside reversals in March - a strong indication bottoms are in for now?

Perhaps the most compelling reason for markets to go higher is the inflationary economic policy being pursued by world governments. Many would prefer inflation to deflation, and are much more worried about deflation as a world problem, and may allow governments to have a higher tolerance for inflation in the coming few years. Usually, government policy changes slowly while weather changes quickly, so government policy pointed towards higher grain markets might be important to growers.

As we peak over the shoulder of spring into summer, it could bring some exciting times to grain prices based upon the recent price action, as a recovery could be substantial into the summer, perhaps giving producers a chance to sell something at a profit yet this spring, summer, or fall. Weather has a role to play yet, as cold/wet conditions are less than ideal for planting spring planted crops. Northern Plains planting may be nonexistent into May, and even many corn belt areas are starting to get concerned with a cool/wet weather forecast well into April. At some point, we need to at least start to plant the 2009 crop to ensure we'll get a decent yield!

In assessing the market today, if a bull market emerges it might very well be driven by old crop soybeans. Given the pace of exports and use, its likely the US will be into a tight stocks situation by July/August. This makes the July and August futures very tempting for speculators to buy to put a tight squeeze on available supplies. It would not surprise Pro Ag to see a huge spread develop between old crop soybeans (which may be extremely limited in supplies) and new crop soybeans (with projected acreage and normal yields supplies could become plentiful). How it plays out in the 30 days prior to harvest might be exciting to say the least! This is the type of market situation speculators dream of, and buyers see as their own special nightmare.

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