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Bottoms last months, tops last minutes

While market tops seem to last minutes or hours, market bottoms generally last

months or even years. Since November, markets have rallied back about $1 in

corn, $1.50 wheat, and $2 soybeans only to lose most of that from January to

today. Nov09 soybeans have pushed back to their 2008 fall lows, and now many of

the other grains aren't far from these targets.

This is consistent with the old idea that bottoms last months, while tops last

just minutes or hours. That might be the best news we have right now, as

markets of all kinds (not just grains or commodities, but stocks as well) are

pushing near recent lows. Stocks have dropped to new lows, with both the S&P

500 and the narrower Dow Jones 30 Industrials dropping to new lows this week.

That leaves open two possibilities for markets right now:

1) Markets slip into new low territory, with the next target at much lower

levels in nearly everything (like $2 corn, $6 soybeans, and $3.50 wheat as well

as a DOW at 4000). In other words, a prolonged recession which becomes a

depression.

2) Markets bottom where they are, with grains possibly hitting a double bottom

with the fall 2008 lows and rallying from there. The DOW and S&P would have to

rally from here, pushing back above 7000 and reversing recent losses to make it

clear it was just a bear trap!

Lets look at these two possibilities and relate what they might all mean. The

first case is an economic disaster, with the housing crises not only bankrupting

many banks, but also spreading to every other area of life such that it puts

almost every investment on the planet in jeopardy as nearly everything would

suffer dramatic depreciation above and beyond the economic devastation that has

already occurred. Not only that, but fear and dismay would become the

predominate economic drivers of decision making - not the kind of environment

you'd want anyone to live in. Putting money under your mattress might be the

best investment on the planet not just for months, but for years! That could

cripple economic activity, and the US might take decades to recover from this

disaster - much like it did in the 1930's depression era. Many people believe

this is inevitable now considering all the terrible economic news the US has

experienced in the past 6 months. Given the current status of the US economy,

one cannot argue that this is becoming more and more likely each passing day.

The second possibility is the most positive outcome at this juncture, with a

turnaround in the next few months that could propel the US economy back into a

strong position. This is what the Obama administration is cheering for, and

also is backing up with some rhetoric (such as the 'buy stocks now' comments by

our fearsome leader). However, it is going to take more than words, but

eventually some actual signs of recovery for the public to buy into this deal.

Given the sad current state of affairs, perhaps the best we can hope for is

stability for now, which can then be followed by improving performance which can

lead to a recovery.

While one has to recognize the depressing news today, I want to choose to take

the more positive light just because I want to, not because it seems eminent a

recovery is around the corner. At Pro Ag, we recognize the inherent risks the

world has right now, with consumer confidence at extreme lows and bad news still

coming in from all reports. While I choose to be more confident, we also

recognize the need to be prudent, and to prepare for the worst. If grains fall

through recent lows (especially corn, wheat, and nearby beans) it may be

impossible to slog through the coming year without some kind of price

protection. That protection may come in the form of put options or even

CRC/RA/GRIP revenue crop insurance - but it is a necessary coverage in the case

of the current situation turning into a full born, long lasting depression. For

the CRC/RA/GRIP protection, now more than ever with the risk of a possible long

lasting depression (lasting years, not just months) has to be considered a

realistic possibility. Even USDA in their long term projections recognized some

risk of this type of economic disaster - depression. If so, even $2 corn, $5

soybeans, and $3 wheat might not even be low enough! So like the old sage

flight instructor told me once, "Don't be surprised when the plane fails, be

surprised when it doesn't fail!" In other words, always be prepared for the

worst, and then if it happens, you can deal with it. For grain markets, this

could be especially sage advice for 2009. While making 2009 crop insurance

decisions by this March 16, keep in mind this sage advice, and how it especially

can pertain to decision making given the state of the US economy and grain

markets.

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.

While market tops seem to last minutes or hours, market bottoms generally last months or even years. Since November, markets have rallied back about $1 in corn, $1.50 wheat, and $2 soybeans only to lose most of that from January to today. Nov09 soybeans have pushed back to their 2008 fall lows, and now many of the other grains aren't far from these targets.

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