Decision time -- Ray Grabanski
Grains have continued their recovery this week, gaining back even more and approaching the yearly highs again in corn and soybeans, with wheat running back to the old highs. This was quite a retracement for wheat, gaining a $1 in just over four days of trading! After challenging those highs, they've retreated a bit, but it is impressive to see these healthy gains on the strength of the Australian crop problems with their recent wet harvest.
It is interesting that corn has not participated in the rally, with wheat stocks in the US still projected to be larger than corn ending stocks. One would think there is a lot of wheat of milling quality in the US to provide an offset for the feed wheat that is being produced in large quantities in the Australian outback. It would be an interesting year, indeed, if we actually end up with larger wheat ending stocks than corn ending stocks - this is likely not going to happen, in reality. But what it takes to get the wheat stocks down and corn stocks up is still anyone's guess. So while the US stocks suggest we should be using wheat for feed in the US, the rest of the world's wheat problems with quality wheat is pushing prices another direction - one that is trying to discourage the feeding of milling quality wheat.
So, the wheat market is rallying sharply while dragging the corn and soybeans higher reluctantly. Whether or not corn and soybean cans continue their rally and gain back enough to push these markets back into uptrends (after recent topping type price action) remains to be seen.
The enthusiasm for the bull side of corn and soybeans just doesn't seem to be there.
So, while the markets have recovered a great deal recently, it remains to be seen whether they can overcome the recent highs in corn and soybeans.
Since we've regained so much of recent losses (60-70% retracement of losses since Nov. 9), these are great places to place hedges in a low risk, high potential reward location. For markets in corn and soybeans suggested topping type price action in early November, and now have retraced about as far as they should IF the top has indeed been formed.
Selling at current price levels, with a buy stop above the old highs, seems like a very prudent thing to do for hedgers. For if indeed the top was finally formed in early November, these prices won't be seen again for a while. And if these aren't tops, we can simply stop ourselves out at the old highs (a specified price risk parameter) and hope the market continues to run higher. Although Pro Ag is not a believer in seeing prices equal to 2008 highs, if we don't stop here that realistically is the next technical price target. It just doesn't seem like the world is in quite the same bullish mindset as it was in the 2008 rally, and it sure didn't take long for prices to retreat from those levels once the highs were formed.