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Grains seeking new highs
Grains resumed their bullish bias in the past week, led by Mnpls HRS wheat
futures as spring wheat hit the $10 level for the first time ever.
followed that rally by pushing to new highs as well, with new crop corn
running near the $4.50 mark. The only grain markets that have not run to
new highs are old crop corn and old crop SRW Chicago wheat futures.
These new, higher price levels seem to be reached with little effort, as
grains seem to go higher about 5 days for every one day prices close lower.
Money continues to pour into commodities as investors see the high returns
in grains over the past year (estimated at 25%). A DOW Jones wire report
this week indicated investors at a conference in New York continue to be
bullish grains. Many expect that trend to continue for at least 5 years, a
possibility that makes grain buyers flinch.
The US Federal Reserve this week cut interest rates another 0.25% down to
4.25%, indicating they are willing to accept inflation for now in order to
battle the financial crises in the housing sector. The FED doesn't want
home prices to continue their downward spiral, and thus jeopardize more
homeowners to be subject to foreclosure. Their alternative is to try to
pump money into the economy with lower interest rates. Wednesday they upped
the ante by announcing they were also planning to Auction $40 billion
dollars off next week to try to pump up the money supply. This is part of a
plan with other world central bankers (Swiss, EU, England, and Canada) to
try to deal with the global credit crunch, an unprecedented event.
Apparently they feel the cut in interest rates was not enough to increase
Adding to the bullish enthusiasm is the new, higher projected 2008 prices by
some financial services speculative firms (including Goldman Sachs) of over
$5 corn, $15 soybeans, and $7-8 wheat. The market didn't take long to react
to this report Tuesday, with new price highs for most new crops. We now
have new crop 2008 wheat at $7.75 to $8.75 per bushel, corn at $4.50/bushel,
and soybeans at $10.75 and these numbers seem to be rising every day. We
aren't anywhere close to the time frame where these markets should be
bidding for acres, and yet we continually run to new highs each day.
More and more we are hearing of calls for much higher price targets by next
spring, something that usually would occur seasonally. But also corn prices
at $4.50 accompanied by huge discounts for ethanol relative to gasoline
could present some demand changes for corn. Ethanol plants simply cannot
make money at current price relationships, with these numbers getting worse
as you move into next summer (corn at a premium price near $4.50 futures vs.
$4.10 now). Obviously, there would be some shutdown of ethanol plants
sometime in the next year if price relationships stay where they are at. If
so, corn ethanol demand or use could be cut significantly as we enter the
last half of the year.
No question, the bullishness in grains has accelerated, and the 'hoarding'
of grain by farmers (mentioned in this column a few weeks ago) combined with
willingness of speculators to buy more grains is a perfect storm for grain
prices. Hedge funds and Wall Street types keep wanting to buy more grain,
and with tight farmer holding this is becoming a huge momentum bull market.
Hang on, as there seems to be a lot ahead for the next few months!
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
If you have questions about this column, call Progressive Ag at 1-800-450-
1404, or email ray at email@example.com.
Grains resumed their bullish bias in the past week, led by Mnpls HRS wheat futures as spring wheat hit the $10 level for the first time ever.