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Grains bulls running

The grain bull market is up and running, with corn and soybeans now running to
new recent highs, and even wheat participating in the rally lately.

As early as
last November Pro Ag was warning about getting too bearish grain markets, and
here we are with prices now improving greatly as we move into late spring - a
move we correctly anticipated while everyone else was crying like 'Chicken Little'
that the sky was falling! It doesn't get much better than this for grain
farmers, as prices rising means a better (or at least some) profit margin for
2009. We broke the $4.50 Dec corn futures market this week, and soybean futures
are threatening $10 Nov. and $11.50 July on this assault, and this might be just
the beginning.

USDA hinted in the May supply/demand report that the less than ideal spring is
becoming a problem for grain producers, with a cut in corn yields to 1.5 bu
below 'trend' due to late planting thus far. Not only might we be losing yield
potential in corn planted late, but we also might be losing acres as well.
Given USDA's smaller projected carryout of only 1.145 billion bushels (240 mb
smaller than traders expected), if we lost 1 million acres (as Pro Ag projects)
we would have carryout projected at less than 1 billon bushels (usually
considered a bullish area in corn). Any additional weather problems this summer
will provide a nice bull market run. Pro Ag wonders about the wisdom of the
market not to be concerned with corn supplies in 2009, as traders seem a little
too reassured that late planting can always turn out OK like in 2008. Pro Ag is
not so sure! By the time spring is over, the market might be bidding pretty
aggressively for corn acres if supplies are really that small. USDA also hiked
exports 50 mb and ethanol use 50 mb for 2008/09, showing EXPANDING demand
instead of demand destruction. Does USDA know something about the future that
we don't??? Perhaps the dollar shrinking in value, or inflation worries
starting to emerge??? With demand now expanding and supply still contracting,
that can become an interesting market situation!

Soybeans have a supply problem as well, but not for next year (as is the case in
corn), instead for this year's old crop supplies. USDA confirmed all suspicions
in cutting soybean ending stocks 35 mb from last month to only 130 mb, a very
small supply to finish up the year. Given the pace of exports to date, this
number is likely to get even smaller as we move forward, as we are still
exporting far too many soybeans. We are at risk of running out of soybeans yet
before US new crop is harvested. USDA also cut drastically the Argentine
production estimate (5 mmt or just under 200 mb) - expected but a huge cut
nonetheless (and more to come???). A 200 mb cut in production estimates for
soybeans would be huge in the US - we only have a 230 mb 2009/2010 ending stocks
estimate today with trend yields. Pro Ag wonders openly if we can hit trend
yields with late planting and potential 'mudding in' of soybean acres.

We can't
seem to hit trend yields even with normal or early planting as soybean genetics
don't seem up to par with corn. Instead, the USDA yield of 42.6 bu looks
awfully high compared to the 39.6 bu yield last year. If we cut 1 bu/acre from
that number today, ending stocks go back to about 150 mb - a pipeline supply.
While we might add 1-2 million acres from lost corn acreage in the eastern corn
belt, it leaves little margin for error in the 2009 crop yield. With late
planting followed by any crop problem (heat, drought, etc) even soybeans could
end up in a tight stocks situation for 2009/2010.

Wheat prices even started to look bullish this week, with new recent highs
(dating back to January 2009) making charts for even this grain looking
brighter. While USDA's numbers tightened for US wheat in the May report, the
world numbers didn't look so pretty. Much higher projected world stocks put a
damper on higher wheat prices. But looking closer at the report reveals some
cracks in the bearish thinking. World wheat supplies are always a bit 'elusive'
to justify, as some parts of the world where wheat is raised/used have a hard
time getting accurate date on almost anything. (Even USDA misses on US numbers
sometimes!) USDA does not have a great track record on world wheat
stocks/production, with revisions as much as 2 years after the fact commonplace.
But major exporters numbers are traditionally more precise (EU, Canada,
Argentina, Australia, and now Russia/Ukraine).

Pro Ag notes that major
exporters stocks were not significantly expanded. Perhaps wheat isn't such a
bear market after all??? USDA surprised us with increased export projections in
wheat while most of us agree at the current sales pace we might have had trouble
getting to old projections. Perhaps USDA is seeing again a reason for importers
to pick up sales at this time? Is it related to the dollar, the US
'depression' fighting economic plan, or the inflation threats looming in the
horizon? Or all of the above?

Yes, the world is getting interesting again in grain markets, with positive news
breaking out all over and prices starting to reflect it. Perhaps 2009 won't be
such a bad farming year, after all!

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 judgement and do not
guarantee 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.

Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email

The grain bull market is up and running, with corn and soybeans now running to new recent highs, and even wheat participating in the rally lately.

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