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Confirmation lows are in?

Tuesday's USDA acreage and stocks report may have confirmed the lows are
established in the market for the time being, as the acreage/stocks report had
plenty of friendly news for grains. Contrary to all the negative talk all
winter (while Pro Ag proclaimed we were establishing a bottom in grain markets),
the news today is anything but negative. Yes, Chicken Little, the sky isn't
falling for grain markets, despite the media and marketing pretenders who have
been crying this all winter long (stock traders - does this sound familiar?).

Projected planted acreage for all crops was down 7+ million acres from last year
- a shock to those that ridiculed USDA's early 5 million acre decline! That
also was a shock to grain buyers worldwide, who had concluded that farmers were
still getting plenty of money for grains compared to past years. What they
didn't seem to realize was how much costs (fertilizer gougers beware!) have also
risen for farmers. The bloom is off the boom production forecasters! With a
cut of over 7 million acres, farmers gave a resounding "No thanks" to current
price offerings. While last year's prices ramped up acres, this year's prices
actually discouraged production to the point of LOSING >7 million acres - too
much in Pro Ag's eyes.

Now the US economy may also be on the way to leading the world economy out of
the recession, and all of a sudden the 2009 crop price outlook has improved
dramatically from just a month or two ago. Extremely wet weather patterns which
started two weeks ago show no signs of weakening (in fact they may be
strengthening!). Charts of corn and soybeans arguably have turned higher, with
bottoms already nicely formed on most charts.

Wheat prices are dangerously close yet to recent bottoms, as winter wheat
prospects have improved with the return of wetter weather to the US. However,
does this make wheat just a great speculative buy today??? Buying wheat with a
small stop below recent lows might be a great risk/reward market today, with $1-
$1.50 upside objectives opened up and minimal downside risk. With corn markets
rallying strongly, the traditional corn/wheat price relationship looks severely
out of whack, with Dec corn trading at $4.35 and July wheat at only $5.45. Once
the improving crop conditions are factored into the market, wheat might in fact
be the best "value" buy on the board.

That won't hurt soybean or corn's feelings much, either, as both seem to have a
solid foundation. Actually, upside monthly reversals in December perhaps
indicated these were the lows, and the last chance to buy at this bottom may
have occurred on March 30 - before the report (or at 10 am after the report for
corn at 4c lower). March formed another upside monthly reversal, and may
indicate a more aggressive bull market in the near future.

For producers who sold a good share of corn and soybeans recently, perhaps this
is a good time to start thinking about ways to re-own grain for a spring bull
market. Pro Ag likes selling put options for now, with option premiums still
somewhat high and the odds of losing on these now declining. This is also a
great alternative to owning cash soybeans and spring wheat, which have a
strongly inverted market spread situation which strongly favors selling cash and
buying paper. Even call options might work for the next few months in spite of
the high cost of options persisting today after the recent 2 year price
explosion and last fall's implosion. By selling put options, you might actually
get paid to take risk rather than storing grain in the elevator (and paying to
take price risk in the form of interest and storage costs). This especially
makes sense for soybeans and HRS wheat (except low protein spring wheat).

Pro Ag expects the US to virtually run out of soybeans by harvest 2009, with
stocks extraordinarily tight and exports still much stronger than supplies will
support. We might even see a positive basis ($.50 or higher???) before new crop
harvest is pulled in. This will be especially surprising to users after hearing
from some analysts/conventional wisdom last winter stated basis of -$1 or more
would become permanent! So much for conventional wisdom! As the demand
pipeline expands with economic recovery and financially weak ethanol plants
retooling their financial structure, it could become an interesting late
spring/early summer market. Stay tuned, as we may yet get outstanding sales
opportunities over the next few months - better than anyone might currently
imagine!

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.

Tuesday's USDA acreage and stocks report may have confirmed the lows are established in the market for the time being, as the acreage/stocks report had plenty of friendly news for grains. Contrary to all the negative talk all winter (while Pro Ag proclaimed we were establishing a bottom in grain markets), the news today is anything but negative. Yes, Chicken Little, the sky isn't falling for grain markets, despite the media and marketing pretenders who have been crying this all winter long (stock traders - does this sound familiar?).

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