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Erratic as she goes
The old saying 'Steady as she goes' certainly doesn't apply to the grain
markets today, as erratic trade is the norm with some 30 cent losses in soybeans
(and sometimes corn) followed by 30 cent gains.
Grains have seemed to stabilize at
recent values between $3 and $4.20 corn and $8-$10 soybeans. There are many who
are calling for $6 soybeans in the coming year, but Pro Ag is reluctant to
believe these forecasts can come true. To return to the old price levels given
all that has happened doesn't seem likely, even though it does appear that crude
oil has for now returned to pre-2006 levels.
But grains seem to have departed from crude oil somewhat in the past month or
so, as crude oil has crumbled lower while corn has actually rallied during
December and January. Ditto with soybeans, so the tie between crude oil and
corn seems to be weakening for now. No doubt, given ethanol production capacity
the tie is still there, but recently the market seems to have divorced itself
somewhat from the crude oil market.
Does anyone believe crude oil will stay below $40 this year??? Its seems
unlikely it will given the price of almost all other things and the stimulatory
fiscal and monetary policy currently employed. It typically takes 6-12 months
for government activity to impact private business and the economy, which would
put a recovery at sometime this summer or later. If the economy starts to
strengthen in the US (who typically goes into recession first in the world, and
then goes out of recession first since we have more private industry and that
responds sooner), then crude could bottom relatively soon. $30 looks like solid
support on charts, so as far as purchasing energy inputs, its probably close to
the time to get that done.
While USDA just gave us the most bearish report of the year, Argentina has slid
into a drought at an inopportune time, with official planted acreage estimates
and production starting to drop and it may only be the beginning. The world
just might be reminded yet that even though stocks have been replenished
somewhat, we still have a strong demand scenario for grains (and it could
improve if economies start to recover soon). Bottom Line: The strong economies
of India and China and emerging purchasing power of their people has likely not
ended, it has just stalled for a while. So the fundamental reason for the
commodity rally may not be completely over.
Pro Ag is not bullish to the point we are forecasting a return to new highs ($8
corn, $16+ beans, or $13+ wheat) but we can foresee a 2009 which include as high
as $5.50 corn, $12 soybeans, and $7.25-$7.50 wheat. It will take a recovery in
world economies and a hiccup in crop production somewhere, but these certaintly
are attainable values. Accetable levels to sell might include $4.50-$5.50 corn,
$10-$12 soybeans, and $6-$7.50 wheat futures. It could be interesting how we
get there, though. It could be a tug and a pull, 4 steps forward and 3 steps
back kind of rally - different than the past few years but probably more typical
of grain markets.
So while some stability might finally be hitting grain markets (monthly upside
reversals formed last month in all grains), most other markets for now are not
participating in the rally. Crude so far has not had a positive technical
development, although some support seems to have been found. Interest rates
might have finally bottomed, but so far that is maybe the only commodity besides
grains that has shown some stability.
So "Erratic as it Goes!" might be the battle cry for 2009. Let the battle
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 judgement and do not
guarantee 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.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
The old saying 'Steady as she goes' certainly doesn't apply to the grain markets today, as erratic trade is the norm with some 30 cent losses in soybeans (and sometimes corn) followed by 30 cent gains.