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Ray Grabanski: Bear Market!

Agriculture.com Staff 12/21/2009 @ 9:30am

The bear market has officially begun for grains, ending the bull market run that started during harvest and ran prices quite a bit higher into December. It was surprising how much we've gone up while USDA is still projecting record high yields for both corn and soybeans in the U.S.

Private estatimes are coming in a little higher yet, with Informa numbers out today raising production 50 million bushels in corn and 80 million bushels in soybeans. The only bullish news came in wheat, where planted acreage was suspected down 10% or so from last year's levels. That's a pretty big decline, and did support the wheat market.

But overall, a bear market has just been confirmed developing in soybeans, with lower lows and lower highs in the market technicals that seem to suggest even lower prices ahead. How far can prices go down?

Our previous 16 month price range for soybeans seems to be from $8 to $11 (and spiked to $13 for a time during last summer's tight stocks scenario). Corn prices have fluctuated between $3 and $4.50 for the past 16 months. The possibility exists for a significant break in prices, then, it the downtrend becomes well established.

Look for that development to occur should the outside markets continue to trend the way they have recently -- lower in crude oil, metals, the stock market and higher in the U.S. dollar. These trends, once established, could push the market further than anyone believes it can go today. We just failed at the recent highs in corn and soybeans, so the downside risk is there.

Pro Ag moved to 100% priced 2009 soybeans (mostly short term storage hedges) and 10% priced 2010 soybeans this week. We've already put longer term storage hedges on 50% of the 2009 corn, 30% of 2010 corn, and 10% of 2011 corn so effectively we've got the equivalent of almost all of this year's crop marketed or price protected.

Perhaps we should have priced most of next year's crop, too?

It will be interesting to see just how far the market dips now that trends may have turned lower. Especially interesting will be how far the outside markets may tilt the markets, and how devastating the outside markets will be on grain prices as well. What goes up must come down, and sometimes it goes down faster than prices rise. That may be the case in the coming months.

Managing the risk of owning crops and managing inventory is never easy. To recognize the longer term storage opportunities in corn and short term storage opportunities in soybeans is a blessing for those with the vision necessary to do so. But with a downtrend now developed, storing without hedges in place might become a painful venture -- at least in the near term.

The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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