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Wheat explosion, corn next?

Agriculture.com Staff 05/19/2006 @ 2:58pm

The explosion in wheat prices over the last month has been dynamic with futures gaining 50 to 70 cents. A moderately friendly USDA report, weather concerns and issues regarding world wheat are helping bolster a significant price rally. In addition, massive fund buying and significant short-covering are also driving prices higher.

Will corn prices follow? Over the last decade, when wheat prices move, corn prices have a tendency to follow. Higher wheat prices, coupled with a long-term friendly corn Supply and Demand report this month, suggest a bullish set-up for corn. Oftentimes, bear markets turn into bull markets when least expected. Case in point: corn this year. Massive crops the past two years and plentiful supplies made it seem unlikely that corn had any chance moving higher into the spring months. However, futures continue to trend higher. Significant speculative money continues to pour into the corn market on prospects for long-term demand to outstrip supply. Acreage numbers in the U.S. and worldwide are relatively unchanged. Unless yield increases at a rapid pace, it may be just a matter of time before supply needs to be rationed, especially if weather becomes a factor.

However, 2006, 2007 and even 2008 prices are already offering opportunities for farmers. Currently, the facts are as follows. First, carryout is well above two billion and more than sufficient for current needs. A big crop in 2006 would confirm more than ample inventory for the winter of 2007. Second, projected long-term demand is simply that -- projection. It has not come to fruition yet. From an economic standpoint, the more prices rally now, the likelier demand will diminish and production increase. Therefore, the real dilemma farmers face this year is how much to sell now.

A couple of years ago, we wrote that the corn market was a sleeping giant. It is starting to awaken. Big demand and uncertainty in the future requires farmers to have a well thought out, disciplined and balanced marketing strategy.

If you have any questions or comments, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

The explosion in wheat prices over the last month has been dynamic with futures gaining 50 to 70 cents. A moderately friendly USDA report, weather concerns and issues regarding world wheat are helping bolster a significant price rally. In addition, massive fund buying and significant short-covering are also driving prices higher.

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