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Grains at crossroads

As of today, the grains appear at a crossroads.

Should they run higher, and
once again defy the technicians who typical are able to pick tops by the
amount of price changes which occurred (recent breaks in wheat and soybeans
are large enough to qualify)? Or do wheat and soybean markets break now in
a new downtrend that will continue for months?

This is the question currently heavy on the minds of traders as we move into
the USDA acreage intentions report on Monday. Much has happened already
this winter, and the rally which began in Sept'06 is now getting more mature
by the day. The 19 month rally in wheat had a blast off top in HRS wheat
(followed a few weeks by winter wheat blasting higher) that can certainly
qualify for a trend buster. HRS wheat cash prices are almost $8 off their
highs, and the market is more erratic than one could have imagined.

Here are the reasons wheat and soybeans may have topped:

1) The erratic nature of the grain market is typical of market tops -
very volatile and very unpredictable.

2) Funds appear to be willing sellers of wheat, and to a lesser extent,
soybeans. Since funds were the ones who pushed the market higher with
little change in fundamentals, they can push it lower, too, on no
change in fundamentals.

3) Technically, both have sold off sharply from their highs. The limit
down moves on consecutive days last week are enough to indicate a top.
In fact, soybeans have lower lows and lower highs on daily charts.
The dramatic downside weekly reversal in soybeans a few weeks ago also
looms ominously over the market.

4) Wheat has a double top in Mnpls Sept. wheat, and Chicago July 08, 09,
and 10 all have dropped dramatically and together. This indicates
more consistently that wheat prices are overpriced across the board.

5) Wheat prices in the US are higher than in Europe/France. That
indicates wheat is overpriced in the US.

6) We are now only months away from new crop wheat supplies, which should
be much more plentiful than old crop supplies.

7) The eastern Corn Belt is very wet as is the Delta/Southeast; this can
delay corn planting and mean even more acres of soybeans than
currently expected. The USDA planting intentions report also will
likely be bearish beans, as more people want to switch away from corn
due to high fertilizer costs and rotational considerations.

The reasons for wheat to have topped are probably more convincing than for
soybeans, and seasonally wheat prices are more likely to peak now than
later. Soybeans typically peak in April or June, with May also typically a
strong month. But then again, things might be different this year given the
potential late spring we may have in the eastern Corn Belt.

Here are the reasons why grain prices could go higher:

1) The US economy is in the tank as housing prices plummet, meaning the
Federal Reserve will do anything to try to pull it out of this mess,
including causing inflation if they have to. That's bullish
commodities!

2) Corn acreage will be short in 2008, especially if Pro Ag is correct in
forecasting a smaller than expected corn planted acreage number next
Monday. Corn is king in commodities; if corn prices rise, everything
else will follow.

3) Corn trend has not turned lower; in fact, corn prices are on the verge
of running to new highs.

4) We still need to trade weather; prices can't go down until we can
ensure we produce more than we will consume. Its not a sure thing
that in any commodity yet that we will produce more than we consume.

Things are just getting interesting, and then the plot thickens further.
Who would have expected markets to follow their worst price drop ever last
week with limit gains in most grains the first 3 days of this week. The
next few weeks will sure be entertaining in the grain markets. Who needs
soap opera's?

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 judgment and do not guarantee that 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.

If you have questions about this column, call Progressive Ag at 1-800-450-
1404, or email Ray at rlg@progressiveag.com (return receipt requested).

As of today, the grains appear at a crossroads.

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