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Beginning of the bottom?

Grains have shown signs of bottoming, with an upside reversal Monday followed by

strength today in front of the USDA December report tomorrow morning. Most

expect the report to show larger ending stocks of corn, soybeans, and wheat for

world and US stocks. But then the market has halved its price of virtually

every commodity the past 5 months, so perhaps all that information is already in

the market??? On the other hand, the downtrend is still very well established,

and so far we haven't had a great deal of bullish news to reverse this trend.

While the grains have pushed into new lows, the DOW and S&P 500 have not,

holding above the 7500 DOW level and in fact rallying while the grains pushed

into new lows. Perhaps now we are getting to the point where the grains are

finally finding 'value' in the marketplace, and it's the financials that are

finally starting to stabilize the grains (now that's a switch!). After all,

cash corn prices are only about 1/3 what they were in July in weak basis

locations ($2.50 now vs. $7.50 in July).

It will be tough to show in this month's USDA report any type of change nearly

large enough to indicate a fundamental value change anywhere close to that

listed above. The question on everyone's mind is, how did the markets get so

out of hand?

We all have to wonder about the viability of the recent market, as the market

couldn't find a price high enough this summer it seemed for almost any

commodity. And now only 5 months later, it seems we can't find a price low

enough to find 'value' in these commodities. Is $40 crude oil low enough? $3

corn futures? $7 soybeans? $5 wheat?

While the commodities have melted away their values quickly (like an ice cube on

a hot day), the world has watched with pain and horror both the uptrend in the

commodities (especially crude) as well as the downtrend. There is littered in

the shadows some of the victims of the recent volatility, from Verasun Ethanol

to a number of risk managers and potentially a whale of other players as yet

unnamed (including small farmers, fertilizer dealers, and small traders) that

have been obliterated by the unprecedented volatility in the markets. While the

world should have had a fair warning about how volatile markets could get by the

past violent 2 year rally into July, the retreat was even more alarming and

fast, taking away over 2 years of rally in just 5 months. Left littered on the

gutters are those who couldn't foresee such a devastating decline in values in

such a short period of time.

Unfortunately, the list of those affected goes well beyond those poor managers

who didn't foresee the risk in markets, as 'Third Party Risk' is getting a whole

new definition by the year 2008! Players who had good contracts with previously

reputable businesses now find themselves on the short end of the stick, holding

$5, $6, and $7 corn cash contracts only to find they are printed on worthless

paper. While the sting of margin calls was a unpleasant thing for many growers

who did their own hedging, holding them yourself at least meant you were in

charge of your own destiny. If you lifted your own hedges rather than meet

margin calls, at least it was your choice. But to have your well planned sales

negated by something beyond your own control - that's just unacceptable.

There won't be any bailout for these victims of third party risk in this case,

as it doesn't have the high visibility of an AIG, Fannie Mae, Freddy Mac, or

Bear Stearns. But for those who are victims of third party risk in the Ag

Sector, the pain will be just as real and just as devastating.

To hold the line for someone else's error as some brave elevator managers are

doing is admirable, but you have to feel for these courageous individuals as

they eat the losses of someone else's poor management. Its too bad these brave

souls could not only get access to the $700 billion bailout to cover someone

else's errors, but also run the program for the government! We just might be in

need of such courage in the face of adversity!

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.

If you have questions about this column, call Progressive Ag at 1-800-450-1404,

or email ray at rlg@progressiveag.com.

Grains have shown signs of bottoming, with an upside reversal Monday followed by strength today in front of the USDA December report tomorrow morning. Most expect the report to show larger ending stocks of corn, soybeans, and wheat for world and US stocks. But then the market has halved its price of virtually every commodity the past 5 months, so perhaps all that information is already in the market??? On the other hand, the downtrend is still very well established, and so far we haven't had a great deal of bullish news to reverse this trend.

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