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Grains in recovery mode, analyst says

Grains have recovered a good share of their losses since the Nov. 9 USDA 

report, when grains retreated sharply from recent highs.  Since then we 

have recovered between 50-60% of the losses to date.  The key question 

now is whether prices will continue higher to challenge the old highs, or 

if this recovery is something that should be sold right now.

There are plenty of bulls left in the market, with the season still far 

from over and the problem of allocating the short world crop across the 

whole marketing year still ahead.  That argues for there to still be more 

price rise ahead, as we still continue to export too large a share of 

soybeans each week.  South America still has a long ways to go before 

their production is assured, so there are lots of reasons why the world 

still needs to be concerned about a lack of stockpiles around the globe.  

Wheat recently has got the attention of the trade, with prices shooting 

sharply higher the past few days as more concerns over weather have 

emerged in Australia and Argentina.  Argentina is starting to suffer from 

dry conditions due to the recent few weeks to a month of dry weather 

there that is starting to put stress on crops.  Australia has the reverse 

problem - too wet of conditions that is hurting the quality of the 

remaining crop.  

That has pushed wheat prices higher, and the corn and soybeans are 

following which has given us a nice recovery in what looked like a very 

bearish market based on the sharp break from the post-November USDA 

report.  While the report was friendly, prices retreated rapidly as funds 

unloaded a barrage of long positions.  On weekly charts, wheat has pushed 

back up near its recent highs, with prices likely to test those highs in 

the near term.  

Corn prices are following wheat higher, although reluctantly as corn 

seems to have lost its bullish enthusiasm from funds.  The huge downside 

reversal formed the week of Nov. 9 seems to have kept that market more 

subdued, and it is struggling to move higher (although last week formed 

an upside reversal on weekly charts, although a much weaker one than the 

downside reversal formed 2 weeks earlier).  

Soybeans are acting in between the corn and wheat, with prices drifting 

higher and the strong weekly export sales and shipments numbers 

continuing to draw soybeans higher.  We seem to ship and export between 

40 and 60 mb weekly in the soybeans, with recent numbers still in the 40-

50 mb range (very strong numbers indeed).  The large purchases by China 

and their seemingly unending appetite for soybeans continues to support 

this market.  Weekly soybean charts are reaching back up to near old 

highs as well.

While all this seems positive in recent weeks and days, the market also 

formed a potential top the day of Nov. 9 that cannot be forgotten easily.  

The wheat, corn, and soybeans all dropped over 7% from recent highs, 

another potential top therefore in weekly charts, and certainly a line in 

the sand which cannot be forgotten.  Its always true that tops can be 

formed when everyone is most bullish, and typically they surprise us at 

the timing and the location of tops.  This would certainly be a surprise 

to top out now, as it would defy many of the prognosticators of the 

market.  But sometimes that is what markets do.  

For the conservative hedger, the recovery has presented an opportunity 

that cannot be denied, a potentially low risk/high reward type entry 

point for hedge positions.  Selling a 50-60% retracement of the recent 

break from Nov. 9, using a stop slightly above the recent highs might be 

an opportunity that shouldn't be passed up.  These sales can be made for 

almost any crop year - 2010, 2011, or even 2012 - as prices are around $5 

corn, $12 soybeans, and $8 wheat for all three crop years.  Already, a 

lot of problems are priced into the market at these lofty price levels.  

And profits (in fact, large profits) can be locked in for multiple years 

at these levels.  The potential reward could be great - just recall how 

quickly prices retreated from the 2008 highs and one can imagine a huge 

potential price break in the markets.  Short crops have long tails is the 

old story.  Last year was indeed a short crop for much of the world.  Of 

course, we also have strong demand this year.  But then again, at least 

hedging at these levels we have a well specified risk level that we can 

use to make these sales against.  

So place your bets, and lets see where things settle out!

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 

Tim Hannagan, Progressive Ag

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 futures.

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