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Markets clear as mud

Grain markets seem about as clear as mud today, with the wheat market flashing
signs that a market top has already been scored for this late spring period,
corn flashing possibilities of that today (downside reversal), and soybeans
still a bull market. How can all 3 of these different viewpoints possibly be
right at the same time?

USDA stirred up this cloudy picture today, with a monthly report that was
bullish corn and soybeans, and neutral/bearish wheat. They cut US corn yields 2
more bushels below trend, recognizing the difficulty planting this year's crop.
They also cut US and world ending stocks of corn, and this bullish indication
was met with a huge 'thud' by the market, starting higher and then running to
big 8+c losses in a downside reversal. But buried beneath the numbers was also
a continued sign of demand destruction, this time on the feed side, as USDA cut
both corn and wheat feeding in this months report. Livestock prices have been
battered by the poor economic news, and that will have repercussions on feed
demand the coming year (especially hog feed use).

The wheat production number was lowered 10 mb, but the use number (feeding) was
cut 20 mb to leave a net rise in US ending stocks. World ending stocks were
higher, with the biggest gain in Russia (which offset the major exporters' cuts
in ending stocks). That left wheat unimpressed, and in front of the majority of
winter wheat harvest, prices fell under their own weight today. Wheat prices
have now dropped about 12% from their highs just a few weeks ago, meeting the
Pro Ag definition of a trend change and potential top.

USDA also cut soybean ending stocks (both US and world), leaving a slightly
friendly outlook for soybeans. We are now down to just 110 mb carryout
projected ending this year, an easy indication that ending stocks are basically
pipeline supplies in front of the new crop harvest. Old crop soybeans continue
to lead the bull market forward, with new highs today (which is starting to
sound like a broken record). How far this bull market can go is anyone's guess,
but given the strong market it could be surprising how far it could go (how
about last summer's highs?). For the 2009 marketing year, USDA projects a
midpoint price range of $10 soybeans, $4.30 corn, and $5.40 wheat.

Actually, come to think of it, perhaps USDA helped to clear up the cloudy
picture in grains! Soybean demand seems to continue to expand while the supply
chain hasn't geared up enough to meet the expanded demand, so hope springs
eternal in soybean prices. But feed demand continues to contract, a problem for
both corn and wheat prices. With wheat harvest around the corner, wheat prices
are feeling the additional pressure of potential harvest sales. Perhaps wheat
is just the first grain to turn lower?

If so, perhaps it follows that going with wheat eventually will be corn, a feed
grain powerhouse that must take its cues from feed demand (its largest demand
source). Soybeans might still be in a league of their own for the bulls, as
long as old crop prices continue to dominate market movement there. That leaves
the possibility of a few more months (2-3 months???) for prices to continue to
run higher. But the gravitational pull of wheat and corn may make it a little
tougher sled to ride in the coming few months.

We still have the uncertainties of the weather, for certainly the yield
estimates for wheat, corn, and soybeans will be off by some percentage, the only
question is how much and which way the error will be. Perhaps the early
indication, though, is in the reaction to the numbers. Corn reacted the most
opposite the USDA numbers today, closing lower on a bullish report. That might
be telling us about the current state of development in corn. As late as the
crop was planted (some still being put into the ground), it is surprising how
good the corn is rated. For soybeans, there is no early indication yet about
its crop ratings. Given the lateness of the crop seeding, warm weather in
northern Corn Belt areas might be bearish (helps with reaching maturity), while
in southern areas heat might be bullish (cooking the late planted crop). So
these two weather items will need to be monitored throughout the year.

It will be interesting to see if the weakness in corn will be followed by a
trend breaking move lower. Or was this just a correction in a bull market? We
might find out a lot about the corn price direction in the next few days!!! As
always, the market is keeping us on our toes. Lets just hope we don't stub any
on our way to marketing our grain!

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
Kristi@progressiveag.com.

Grain markets seem about as clear as mud today, with the wheat market flashing signs that a market top has already been scored for this late spring period, corn flashing possibilities of that today (downside reversal), and soybeans still a bull market. How can all 3 of these different viewpoints possibly be right at the same time?

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