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Grains at a crossroads

Agriculture.com Staff 04/26/2007 @ 1:56pm

Grain markets seem at a crossroads, with a boom higher in wheat pushing corn and soybeans higher as well.

Is this the beginning of another bull run, or just a flash in the pan of lower corn/bean prices? After twice touching on the $3.70 Dec07 futures level for corn, and both times bounced higher from it, for corn and soybean producers, this might be the line drawn in the sand for both.

This is the first point since mid-February's reversal lower in corn where a person could actually draw a line in the sand and say "Corn could go higher from here." Of course, weather will have a lot to say about that in the next few weeks. But, so far April has not been the best month for corn growers, with a very slow start to planting and a freeze that knocked back early corn in the southern states.

We've also eliminated a lot of competition from wheat feeding, too, with the Pro Ag yield model indicating we've lost 3 bu/acre on the US winter wheat crop. More than likely, with some acreage also torn up in the central/eastern corn belt, we lost 125-150 mb of wheat production in just 3 weeks, with most of the loss coming the first weekend in April. Its just taken the market this long to figure out how much damage was actually done! So here we are, with a lot different picture today than just a few weeks ago, and at another critical point in the market game. Will markets turn, or will weather straighten out from here to leave a decent crop for 2007?

These are the questions that no one can answer for certain. But certainly there have been some signs indicating this could be our turning point for grains as outlined below:

1. The US dollar continues to weaken, underpinning the inflation argument for grains (and virtually all other commodities) in the US.

2. We've beaten down our record large winter wheat crop to just 'average', and the yield potential is still declining this week - 3 weeks after the freeze.

3. Wheat acreage in KS, MO, and into OH is being torn up to be replanted to corn. That further delays new crop feed supplies, but in the end might mean more feedgrains, not less, if the corn comes through.

4. Soybean prices have already dropped over $1 from recent highs, with corn down about the same. Is this enough? Will funds come back to the table for more?

5. We've developed a late planting situation for corn (and many other grains) after what looked like a decent start in March. And the early planted corn that did all that developing in March will likely need to be replanted.

6. Forages (alfalfa and grasses) also were set back significantly, with some agronomists saying southern alfalfa will miss its first crop harvest.

7. New crop wheat has busted to new highs, indicating there is some bullishness left in this 'given-up-for-dead' market. Can we do more???

We've had more than a month sell-off at this point, with wheat reversing its downtrend 3 weeks ago with the early warning signs of the freeze. We just may be primed now to reverse these markets again, with funds piling in new market length - 'déjà vu all over again' as Yogi Berra said.

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