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Can grains keep on rolling?

Agriculture.com Staff 05/31/2007 @ 8:12am

Grain prices just keep on rolling higher, not impacted by a good start to the 2007 season.

It's fun to be a bull today, as no matter what the circumstances, the bullish argument seems to still stick. First, it was delayed planting that got the bull market excited, and kept grains from any meaningful decline. But once it started drying up in the soggy eastern corn belt, planting accelerated just in time so that during the crunch planting season, we actually moved ahead of normal planting progress. Today, crop development is well ahead of even last year's pace (and well ahead of average).

But, the bullish argument is still sticking. Now, it isn't because of planting progress anymore as that is too far along. Now the bull argument is along the lines of drought threats in the eastern Corn Belt, which actually to this point has been the soggy area to begin the 2007 crop year. But a concerning weather pattern (warm and dry) which seems to deflect all major storms is becoming a concern.

The interesting thing is that the market is very highly rated right now, with early planting an interesting combination to say the least. Currently the Pro Ag corn yield model is well over trend at 156.5 bu or so, and also well above USDA's current projection (which is slightly below 'trend'). So, even though we still have an above average crop coming in the 2007 fields, still the market is putting a premium in for weather problems (as of today we don't have one).

It's an unusual situation! Last week we wrote about how great the start not only in the corn crop, but also in soybeans, HRS wheat, winter wheat, and oats crop. We currently have an above average crop not only of corn, but also winter wheat (in fact, Pro Ag projects a record large yield), HRS wheat, barley, oats, and just about anything producers raise. Yet prices keep on rallying.

Wednesday was perhaps a prime example. While corn crop ratings are still at very good numbers (unchanged from last week at 78% G/E), still prices rallied. Pro Ag winter wheat yield model numbers were up 0.25 bu/acre this week, adding another 10 mb or so to total crop size the past week. Offsetting that somewhat was smaller HRS wheat yield projections (down 0.6 bu/acre) but since winter wheat has so many more acres than HRS, still total wheat projected production was up.

So, why do grains keep rallying if the crops are currently so good? There are really 2 explanations: 1) Anticipation of adverse 'drought' weather, and 2) Fund buying amid little farmer selling. The first can be explained by the dry eastern Corn Belt numbers. But still, the eastern Corn Belt crop is still highly rated.

Fund buying amid small farmer selling might actually be a better reason. Farmers seem very bullish after our winter rally, and they may be holding tight to existing grain left in storage. Funds also still seem interesting in buying, and continue to do so (even though they already own 2.5 billion bu corn, and 1 billion+ of wheat/soybeans). With funds buying and farmers still tight fisted sellers, the market has no where to go but up.

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