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Grains slowly break out
Grains are slowly breaking out of their recent price ranges, with soybeans and corn running to new recent highs lately on continued dry weather in South America. Argentina, especially, is experiencing dry weather in some main growing areas, helping many to trim their crop production estimates for both corn and soybeans. Dry weather during this critical time period certainly can trim production outlooks.
Not only are there problems in the SAM production region, but also many other commodities continue to hold their strong gains. Cotton, Sugar, and Coffee all have had strong runs higher recently, with all 3 running to new recent highs and showing the same kind of strength as grains.
While grains have not exceeded their 2008 highs, the soft commodities mentioned above have run to new all-time highs recently. And they are not showing any signs of weakness yet, in spite of the CRB index at or near its 2008 highs as well. Perhaps the story of 2010 is in the soft commodities, with all-time highs formed for cotton and coffee, and sugar exceeding its 2008 highs.
The softs have finally caught up with many of the other commodities, with energy and grains having strong bull runs in 2008. But the softs had their run in 2010, with an exceptional pricing year forthe soft markets.
Now, we go into 2011 with cotton competing for acres with corn, soybeans, and wheat. With the huge spike in cotton prices in 2010, it's likely cotton will attract acres back from wheat, corn, and soybeans that they took away due to the strong run in grains in 2008.
So commodities are continuing their strong runs in 2010, making a very Happy New Year for many farmers across the globe, as they enjoy their best prices ever for commodities, in general. While the possibility of forming the highs for the year (and perhaps decade) was there for this run, the fact that soybean and corn prices have broken above their two-year highs is indeed a very positive sign.
This is indicating that the run higher won't end at the 2010 highs, and is going to take a run at the 2008 highs as well. That's quite a statement, as 2008 highs were over $16 for soybeans and near $8 for corn.
In the case of corn, we only spent six weeks above $6 futures in 2008. But, in those six weeks, we ran prices all the way to $8, a 33% price rise from $6. We basically spent only three weeks running from $6 to $8, and then it took less than three weeks for prices to break back below $6.
The 2011 run might be equally dynamic, with commodities doing some unusually dynamic things in 2010 (just look at a cotton, coffee, or sugar chart!).
While one could get very excited about the potential for grains into summer 2011, its also interesting that prices haven't become more dynamic to the upside with the recent breakout. Usually a breakout of this type would lead to dynamic
price gains in the near future. Yet prices have hovered at the old highs, seemingly reluctant to go any higher as prices might be starting to allocate the 'shortage' for 2010 by limiting demand in some locations.
So there is some puzzling events unfolding at the end of 2010, with corn and soybeans breaking out of their 2010 highs as we end the year, but no dynamic price rises once the breakout occurs. Puzzling indeed!
Can the markets do another 2008 and blow past the 2010 highs? Or will we fail here, after pushing our head above the 2010 highs, only to find demand faltering and unable to sustain the recent price rally?
Regardless of the answer to the above questions (which we are likely to get as we start the New Year), this has been an outstanding year in 2010, with prices offering farmers some of the best returns in years, and making 2010 one of the best year's ever for farmers.
The strong demand for grains in 2010 is extending the gains to future years, as corn is priced at over $5 for the next 3 years while soybean are priced at over $12 for 2011 and 2012, with wheat priced at over $8 for 2011 and 2012 crops. The world is trying to attract acres into all crops in 2011, and the high prices offered for these future years is indicative of a very strong market indeed.
In the end, it might be important to remember that regardless of what happens in the next few weeks/months, farmers should remember that its likely to be a good thing to sell something during the highs prices which we are experiencing (with 25% or higher profit margins). In the end, any sale above $5 corn, $12 soybeans, and $8 wheat might turn out to be golden. Prices are just not likely to hold these gains, and in the end any sale made in the coming months is likely to turn out to be a good decision. The question is not whether to sell given current high prices, it is just a matter of how much to sell, and when to actually pull the trigger (today, tomorrow, next week, or next month).
But the important thing is to sell something, sometime, and not let this golden opportunity for sales of lots of crop pass you by.
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 profits will be achieved or that losses will notbe 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.
Ray Grabanski is President of Progressive Ag, a marketing and risk management firm for farmers located in Fargo, ND. For questions or comments, or if you are interested in more information about Progressive Ag's common sense marketing services, call 1-800-450-1404