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Some problems in bullish-land?

Agriculture.com Staff 10/04/2007 @ 1:16pm

It’s been fun looking at nothing but positive finishes in grains recently, with wheat leading a rally that has left most everyone shaking their heads. Corn and soybeans have been following, and everyone is feeling pretty good right now.

Then Tuesday came along, and limit losses in all the grains left a bad taste in many bulls’ mouths. Hedge funds have been known to do a few of these 'false tops' in the past. Though it still might be a little early to call them tops. We note that some marketing firms are expecting a multi-year top to possibly form here for wheat, and certainly $9.50 is high enough for that to occur.

But corn is showing signs of spoiling the bullish run, with a crop size that might be approaching a record large crop. Pro Ag yields have been hovering from 157-159+ recently, and so far harvest results suggest it might even be better than that. It was not a perfect corn season everywhere, though, and that is what is most impressive about yield results this year. It seems there is no end to how good the corn genetics seem to be getting. Even far northern ND is reporting yields of 170-180 bu corn, which might be a good 40-50 bushel higher than ever achieved there! Perfect years sometimes do that, with some huge yields reported in areas where things were looking good most of the year. Even areas that received little rain during the heat of summer are reporting some decent yields, keeping the overall national average very near the previous 160 bu/acre record large crop.

Soybeans don't seem to be quite as good, but that didn't stop FC Stone from guessing a 43.0 bushel/acre crop for 2007 in their October guess. That's quite a bit higher than Pro Ag would have suspected, as our yields are closer to the 42 bu area. Given that soybean yields haven't been nearly as impressive as corn thus far, we'd be surprised if USDA comes close to that type of yield hike from the Sept. report (only 41.4 bu/acre).

Regardless of this week's price action, it could be a tough winter for grain buyers, as it appears we won't have enough acreage for the 2008 crop year. Corn acreage might be adequate if we have a 2 billion or higher carryout (which seems likely with big crops and slowing ethanol demand) - even if we lose 4-5 million acres to soybeans. But soybeans and wheat still appear to be short of acres, as we might need an additional 5-7 million acres of these crops than we are likely to get (even with the 4 mln bean hike and 1-2 million wheat hike in acreage).

So, we are left with a possible bidding war between wheat and soybeans for acres next year, with corn not able to drop too far, too fast or it risks losing some of the necessary acres it needs as well. That doesn't mean we won't likely see some breaks in the grains at times this year. And maybe corn can even sustain a deep break at harvest with the very large crop coming in and people struggling to find a home for it all (depending how large it actually is). But it still seems unlikely to break significantly on the new crop months, especially once the crop is all in the bin.

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