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Selling against recent strength

Agriculture.com Staff 02/24/2010 @ 6:32am

Grains have had a nice counter rally against the downtrend, pushing up 70¢ in soybeans and 25-30¢ in corn. Now we are pushing up against resistance at the $3.80 March corn futures and $9.80 March soybean futures price levels. Can we continue to rally higher?

While the strength is nice, it might just be a retracement of the negative mindset that entered the market after the Jan. report. Remember how quickly soybean prices dropped $1.50 from Jan highs, and how quickly corn dropped 50-70¢ from its recent highs in January after that report. Now that we've retraced about 50% of those recent breaks, the market may find more difficult resistance above the market as we move forward.

Alas, the market just isn't the same explosive marketplace as we had a few years ago, when prices were exploding higher weekly and reaching into levels we hadn't seen in years. Now, markets are in well established price ranges of $4.50-$6.50 CBOT wheat futures, $3-$4.50 corn futures, and $8-$11 soybean futures. We need to break out of these ranges to make any significant change in market outlooks. For now, we appear to be locked in this price range as we trade back and forth (as we have the past 18 months).

We still have a large South American crop to deal with for soybean growers and markets, and it's likely we will see a drifting lower of new crop soybean bids, and cash soybean bids are likely to slide lower as we move forward into March and April. The soybean market is suggesting little returns to storage from holding cash soybeans, and is exactly why we recommended selling all soybeans months ago (before the January market crash). Now with basis back near normal, it's time to lock basis on those 2009 soybean sales, converting the futures fix to a cash contract.

Corn is a different market, still offering returns to storage all the way out into the next crop year (2010). Storage hedges of 60% of the 2009 crop are in place, and they are slowly grinding away at making a profit off the market as prices slide back and forth, but mostly head lower in trend. We may regret not having a larger share of 2009 crop sold, but the 30% priced of 2010 crop and 10% of 2011 crop also help in the hedge department. Most of these sales are at $4- $4.60 futures marks, levels that are also slowly grinding out a profit.

Patience might be a virtue in this crop marketing year, waiting for the opportunity to get $4+ corn futures (possible for 2010 and 2011 corn crops right now), and $10+ soybean futures, and $5.50 CBOT wheat futures or better. The wet conditions across the USA as we approach planning time might ensure at least some type of rally this spring (especially with the lack of fall tillage in many wet areas). Northern states (ND, SD, MN, WI) have still got a lot of old crop corn left to combine. To harvest, then dig, then plant might be a tall order this spring on some of these wet acres. That might improve the price outlook of corn, especially in a year where we are expected to expand corn acres. But plow ahead we must! Let's just hope there is some marketing pot of gold at the end of this rainbow! If there is a hot/dry July and August, that might be a certainty!

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Soybeans Rally on Demand, Weather