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Grains explode on Russian/Ukraine drought

Agriculture.com Staff 06/14/2007 @ 11:43am

Grains have rallied sharply the past week, with most of the gains coming after the USDA report Monday which made cuts in wheat production in Ukraine/Russia.

With the Ukrainian/Russian huge cut of 3.5 mmt each in USDA production numbers Monday, the market has taken off! Wheat is leading the way, with new highs daily now as we reach into new price territory, with wheat now worth $6 in many contract months.

Markets have rallied recently (new highs in wheat and soybeans), yet there doesn't seem to be much need for it based on US weather conditions as US crops are better than average and weather forecasts look favorable (cool and wet for the entire Corn Belt). That is most impressive about this rally, as the focus is always on the problem areas, not the good production areas (is this just inflation disguised?). This is meant as a bullish remark, as it doesn't seem to take much to rally the market, but the market doesn't go down much on bearish news (like the record South America soybean crop, the better than average US 2007 crop, the rapid planting pace in early May and excellent US crop conditions). But any indication of a problem in any country (it doesn't even have to be the US), and markets are off to the races!

While many tout the problem areas in the US, Pro Ag indications are that the US has a better than average crop at this point. (What would prices be doing if it was poor?). Pro Ag yield models based on Monday's crop conditions indicate an above average crop of winter wheat (47.68 vs. 45.6 'trend' and 43.5 USDA), HRS wheat (38.61 bu vs. trend 37.7) corn (157.5 bu vs. 151.6 'trend' and 150.3 USDA), and soybeans (42.14 bu/acre vs. 'trend 42.03 and USDA 41.5 bu). US exports are slow and export demand seems to be shrinking, not rising, at this point. The US extended forecast (both 6-10 and 8-14 day) seems favorable, with cool/wet conditions forecast for the entire Corn Belt and southeastern US. The next 5 days bring generous moisture to the western Corn Belt (85% coverage of .5-1.5, locally 2-4" rains) that will keep them completely saturated. The last thing the western Corn Belt need worry about is drought! In fact, for now flooding is a more important concern than drought.

Some ND/SD producers are still struggling with planting the remaining crop, with many acres still left to be planted to minor crops such as dry beans, sunflowers, and even some soybeans. With prevented planting dates ending on June 10 for almost all of these crops and very high payment levels for prevented planting, it's likely that these acres will not be planted in 2007 in spite of high prices. For these producers, 60-70% of their full crop insurance revenue with no expenses (other than rent and fallow costs) is just too attractive to pass up, especially to mud in late crops, lose crop insurance coverage in 2007, hurt yield history, and take this risk in a frost susceptible area. It's likely up to 20% of intended dry bean acres in some counties will not get planted, a very bullish development indeed for dry beans.

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