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Grain bull faltering?

Agriculture.com Staff 06/26/2008 @ 12:00pm

The grain bull market seems to be faltering this spring after nearly two years of straight up prices.

Wheat was the first to lose its luster, dropping from a high of $25 in February for HRS wheat to nearly $8 earlier this month. Corn has hit a high of 7.95 Dec08 this month, a price almost 2x our historic price high range. Soybeans have pushed to $15+, and have provided good opportunity to sell 2009 and 2010 crop soybeans at levels over $14.50. Is the top in for grains?

Based on crop yield potential, we have a better than average winter wheat/HRS wheat crop coming in the US. However, corn has below average yield potential right with Pro Ag yield estimates somewhere around 146 bu/acre as of Monday (maybe 148 today).

USDA's official estimates (which were so bullish in their June 10 report) was 148+ bushels vs. 154 bu trend. So, currently we have a slightly below average corn crop, but improving. Sometimes, you need to keep your eye on what's changing, though, to have a handle on what markets will do in the future. And recently flooding has abated (old news?) while the new news (improving corn/bean crops) might dictate direction from here.

Soybeans is similar, with our Pro Ag yield model just under 41 bu/acre while USDA is at 42, and trend yields would be 42+. So overall, the season is off to a slow start so far. But these things can change, and likely will, as the season goes on. The fear of a drought typically gets grains heated up in the summer, but that's usually when we have a shortage of stored soil moisture. As of the first of July, the entire corn belt soil moisture profile is full. Truth is, we might have a better than average crop due to the stored soil moisture profile when the season is all done. For now, though, we're still concerned about flooding!

With weather improving overall, about the only thing Pro Ag can see taking grains higher yet this year is crude oil - which has nothing to do with grain fundamentals! But it has everything to do with grain prices recently. Crude oil has hung around its recent highs ($134-140/barrel) for weeks now, not typical of a top in the marketplace.

For that reason, Pro Ag has a difficult time believing crude oil has topped for this current decade breaking price move. Instead, we might have one more run higher in crude oil to new highs (above $140), and if that happens grain will probably follow it higher, although reluctantly (if crude up 15%, grains up 8-10%?) . If crude oil cannot run to new highs, then any return near recent grains highs should he heavily hedged.

The grain bull market seems to be faltering this spring after nearly two years of straight up prices.

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