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Warm/wet weather is bearish

Last week, in this column, I asked the question whether warm/wet weather was
bullish or bearish.

Between the lines I suggested that it is not necessarily
bullish (which is what most traders/analysts thought), and this week we found
out why. The warm weather jumpstarts planting progress a lot more than we
realize. On Monday, crop progress numbers showed excellent planting progress
last week across the Corn Belt (53% planted vs 63% average, advancing 30% or 27
million acres last week). MN and ILL planted a huge amount of acres, and this
week they also continue to plant aggressively, as most areas got less than 1" of
rain over the weekend.

South Dakota didn't fare nearly as well, with some 8"+ readings in
the Aberdeen, SD area that will create problems. But much of the rest of the
Corn Belt fared much better, with mostly western IA, eastern NE/SD, and parts of
KS/OK/TX having too much precip the past week.

Hard red spring wheat producers also made historic progress last week, with virtually no
rain until late in the week that allowed farmers to plant over one-third of the
crop in just one week. That puts HRS wheat planted acreage (and barley)
nationally ahead of normal planting progress at 68% complete vs. 62% average, 6%
ahead of normal! With good soil moisture almost everywhere, this isn't really a
bullish development at all.

There are still a lot of people who want to buy corn breaks, and this week they
got another chance as prices have dipped down to recent lows for this season.

New crop continues to be pressured by the rapid pace of planting in the
central/eastern Corn Belt, which is likely to wrap up planting over the next few
days. The weather is expected to stay mostly warm/dry for the next 5 days, with the
extended forecast this afternoon showing a warm/wet pattern (above normal/normal
temps and precip). Once the crop is planted, warm and wet is actually a
greenhouse type environment, so even though we had rapid price losses the past
few days, the market is still struggling to rally.

The best chance of keeping the market on edge and holding some price premium is
for the soggy western Corn Belt to stay soggy, so acres still left to plant don't
get done. There still is a lot of time to plant corn acres, though, and with
warm/dry weather this week we might see planters get back into the fields by
early next week - even in the wettest areas. Unless funds really start to load
up again on corn ownership, we may have already topped corn prices for the year.
Very good planting conditions, too much stored soil moisture, and not enough
planting delays seem to be the death of this bull market.

Soybeans are rallying this week, but mostly that is due to expectations that
even more corn acres might be planted in the central/eastern Corn Belt, due to
the rapid planting pace. With South American crops being record large again,
it's likely there will be plenty of soybeans to go around in 2007/08.

The marketing mantra this year might be much different than last year, with the
idea to 'sell early, and sell often' possibly good advice in 2007. The best
sales timing was in late February/early March. But now growers wonder if it
will pay to sell corn now.

Based on weekly and monthly charts, the assumption that corn futures always have
to stay above $3.50 might be a bad assumption, as currently we are breaking
below a head-and-shoulders top in weekly/monthly corn charts. It could get a
lot uglier from here, especially if this crop gets off to a wonderful
start. It seems like when the market rallies sharply and we all finally agree
about the reason for the rally (corn ethanol demand growth), that the rallies
usually end. Hopefully, 2007 is not that type of problem, but one has to keep
on their toes!

Winter wheat producers also are being surprised by how well the crop has bounced
back from the severe freeze damage suffered at Easter Weekend. Already we've
had 2 weeks of winter wheat crop conditions improving, with ratings well above
last year and average. Pro Ag yield models suggest a 47.15 bu/acre winter wheat
crop, well above last year's 41.7 bu and the second largest yield on record. We
see some private estimates for Friday's report at 42 bu or so, but we think it
will be much larger in the final analysis. If USDA pushes it even to 46
bu/acre, we'll have some fairly bearish news to digest Friday morning.

Pro Ag is also concerned with the corn carryout projection, as the large 90
million acres at trend yield will bring in huge amounts of production. If we
are getting a better than average start in 2007, Pro Ag is concerned that
'trend' yields might be 2-5 bu/acre too low for corn right now. With warm temps
and good soil moisture, emergence might be more rapid than almost any previous
year, leaving planting behind but emergence AHEAD of normal. Pro Ag fears this
also may come out in the next few weeks.

Overall, there isn't much to cheer about on the bull side. We could sure use
some friendly news, as it's becoming even harder to be bullish in the current
market environment.

Bottom line: Warm/wet forecasts once the crop is planted
is not bullish, especially in early spring!

Last week, in this column, I asked the question whether warm/wet weather was bullish or bearish.

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