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Erratic as she goes

Agriculture.com Staff 01/22/2009 @ 10:16am

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.

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