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Crude oil bullishness trumps weather

Agriculture.com Staff 05/21/2008 @ 1:14pm

This week we may have had the most favorable planting progress yet in 2008, with an open planting window for virtually all of the Corn Belt and US.

That had the potential to weaken corn and soybean prices, but instead this week both are higher. Even wheat, which has some good rains forecast for western areas, has rallied substantially this week. HRS wheat planting has moved ahead of normal, and many other crops planting progress is quickly catching up or surpassing normal this week.

But the market is saying "Who cares?" With crude oil running to new highs almost daily, does it matter about grain fundamentals? More and more people are talking about $150-$200 crude oil, so if it goes there, virtually everything will need to go higher eventually. Regardless of grain fundamentals, surging crude oil will drive the cost of everything much higher and provide even more incentive to produce ethanol from nearly everything (corn, barley, grass, wood, etc). At $200 crude, it won't matter what gov't policy is - corn will be worth $8 for energy! So while crude oil surges higher, it might be fruitless to spend too much time contemplating yield impacting weather. Inflation of all commodities might dominate the show, and until crude oil actually tops, its possible that all commodities will continue to inflate.

Perhaps grain fundamentals and weather will just determine when prices go higher and how much, not whether they will (given surging crude oil). That seems to be what the market is telling us today. In fact, the 2009 and 2010 crop prices are surging higher, with Dec09 and Dec10 corn futures surging to new highs while 2008 corn lags 25c below previous highs. This is saying something about the impact of surging oil prices on corn prices down the road. Nearby corn futures are languishing due to much improved planting conditions the past two weeks. Most of the corn will get planted, it appears, based on today's weather forecast.

But does it matter? We are hearing experts like T. Boone Pickens warning about $150-$200 crude, and CNBC recently has crooned about the crude oil market potential, throwing around the $200/barrel mark like coffee at a Starbucks. There is no question that commodities are all following energies, as we saw crude oil surge from $30 to $85 before grains moved a smidgen. Since then grains surged higher, but crude stayed relatively constant between $70-$95/barrel while grain surged higher.

But since March 4 when soybean prices peaked at $14.66 Nov08, crude oil prices have risen from $99.83 to $132+ levels, and soybeans are lower!

Wheat prices peaked at $13.20 Mnpls Sept08 on Feb 26, $12.72 CBOT July, and $13 KC July on March 12-13.

Corn was trading $5.90 Dec08 at the time. So crude is up 33% while most grains (wheat/soybeans) are lower, and in wheat's case, sharply lower! Corn is up fractionally with a severe weather planting delay, but in reality, grains have done virtually nothing collectively while crude blew 33% higher.

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