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Pop a top, again

The whole commodity world is watching with amazement as Minneapolis HRS
wheat is blowing the top off that market, moving limit up the past 9 days
almost every day.

The March futures have rallied $2.56 in just 9 days (5
years ago, that was the cash bid for the same commodity!), just short of
full limit moves every day. In that time span, it has been limit down a few
days during the trading day, only to finish limit higher anyway. The
relationship to the new crop market isn't defined, either, as the new crop
month has lost as much as 60c to the March contract in a single day as the
March closes limit up some days, with new crop limit down ON THE SAME DAY!

Normally, one would expect such movement in a market just before new crop
supplies are delivered, but actually in the Mnpls HRS we are 6 months
removed from harvest in the March contract, as not until August will new
crop supplies be delivered to the marketplace. Yet, the March Mnpls
contract is blowing the top off this marketplace - 6 months before new crop
contracts are in delivery. One has to wonder what will happen to the May
contract once it becomes the lead month??? And what do we do in trading the
next 6 months?

Farmers who still have HRS wheat in their bins are listening daily to the
market updates on radios, and its fun to calculate how much money was made
today for that gold mine sitting in the family farm grain bin. But selling
is not in today's vocabulary, as we are just starting to have fun! Farmer
selling has dried up after 18 months of nearly steady gains, and farmer
'hoarding' has put a whole new definition on the marketplace. What little,
tight stocks are left in this market are extremely hard to try to buy, and
one wonders if the last bit of grain will ever get sold in the marketplace.

Clearly, we are rewriting history books this moment, and the whole world is
watching with amazement as we are reestablishing our understanding of what
markets can do when supplies become short. The combination of fund buying
with little or no farmer selling is putting new definitions of what grain
markets can do. A food grain like wheat is not something wealthy countries
are accustomed to do without, and we are finding out how valuable our food
commodities are to users who like to eat them.

While this has been encouraging, the last few dollars of wheat price are
also something that can be quickly erased once grain supplies start to move
again, or once growers have a chance to produce for that high priced market.
The key now is to decide when enough is enough. That gets difficult,
however, in a marketplace with no clearly established resistance. HRS wheat
prices have never traded at these levels, in fact, the previous high was
roughly half of what the wheat market is trading today. The next price
target for wheat is the inflation adjusted highs, but most people's teeth
fall out when they realize the inflation adjusted highs in wheat are in the
mid-$20's for price. At this point, though, after watching HRS wheat rally
$2.50 in 9 days, one can imagine a scenario where prices could hit those
levels by the new crop harvest which is nearly 5 months away.

So farmers right now can't wait to hear what prices are going to do the next
day, while buyers/users who need to procure supplies dread waking up every
day to try to figure out what to do next. This has to put the fear of God
into the hearts of all commodity grain buyers, as we try to get through
another year until harvest of the US new crop. The US has other problems of
its own, with our economy on the skids, an unpopular war dragging on,
consumer confidence at a low, and the stock market very weak right now. It
looks likely that the DOW could test 10,000 at some time in the next few
years if we continue on this road, as the snowball keeps rolling downhill in
the US economy. This does not seem to deter the wheat commodity market,
although the corn and soybean market seem to be lagging along with metals,
crude oil, and many other commodities.

One can't help but wonder what will happen next?

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 (return receipt requested).

The whole commodity world is watching with amazement as Minneapolis HRS wheat is blowing the top off that market, moving limit up the past 9 days almost every day.

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