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Grains at a crossroads

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.

We need a little cooperation from the weather, which so far this week has
obliged with not only the rain forecast advertised for the past week (with 1-3",
locally 3-4" rains) but also an increasingly wetter forecast to start the first
week of May as well. It this trend continues, we might finally have the
strength to push through the idea that 90 million acres of corn will get planted
this year, and we'll solve our grain shortage problems again (as we typically
do).

But without cooperation from the weather, this could be another bust, too.
Wheat has more than adequate moisture in almost the entire winter wheat area to
produce a good yield (at least average), with current Pro Ag yield estimates
still at 46 bu/acre winter wheat, well above last year's 41.7 bu crop disaster.
If we get two weeks of dry weather rather than wet into May 10, the warm
forecast could dry soils much faster than anyone anticipated. A 65% planted
corn figure on May 10 could kill this rally easily, as the more than adequate
soil moisture nationwide then would have traders penciling in an above average
crop. We might have to add a few acres to corn AND soybean acreage to
account for all those central/eastern Corn Belt winter wheat acres destroyed and
replanted this spring. Keep in mind that corn usually outyields wheat by at least 3 to 1!

So, weather the next 2 weeks (warm/dry or wet/wet/wet) might be an important
pivot point for the market. No question, we've finally gotten the markets
attention, and for today at least we've forgotton about 'intended' corn acres,
and are only dealing with 'planted' acres for now. Place your bets, and decide
what risks you want to live with, and how you are going to manage your decision-
making process. Your financial health in 2007 might be depending upon it!

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

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