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Ray Grabanaski:The bull runs

Grains finally broke out of their previous ranges, with corn and soybeans leading the way Wednesday, with rallies to new highs in both grains.  That was a very positive sign, and very encouraging for bulls, as last week's downside reversal was left in the dust - and now becomes a distant memory as long as grains stay above the previous highs.  Not only have grains broken out into new high territory, but the CRB index has also bounced back above the 2008 highs - indicating that commodities could have a long ways to go up yet.

Indeed, USDA provided the bullish fodder in the final 2010 production report, with another unexpected cut in corn and soybean production. While traders were anticipating a small cut in production from 12.54 billion in Dec. to 12.502 this month, the actual number came in at 12.447 for corn.  

The market responded Wednesday trading limit up on the open, and held most of those gains throughout the day.  Soybean production also was cut more than expected (3.373 billion from 3.375 billion in Dec), while the actual number was 3.329 billion.  The much smaller projection was due to less acreage and smaller yields, and stocks were also lightened up. Ending stocks of corn (now at 745 mb) and soybeans (now only 140 mb) are small and tight, and the market reacted positively to the bullish numbers.

Wheat even participated in the bullish news, with a hike of 50 mb in exports due to the small stocks of grain around the world (especially feed grains).  The US is going to be the last country left with wheat, and expectations are that importing countries will have no choice but to come to the US late in the marketing year.  Wheat ending stocks were cut to 818 mb, still a large number but smaller than last month (858 mb).  

Overall, the stocks of grain continue to get tighter and that is what continues to fuel the higher prices.  

This is the best of all scenarios for farmers, with a good price and a pretty good crop in 2010.  World stocks continue to get tighter, with coarse grains now at 158.8 mmt (down about 3 mmt from last month).  Wheat stocks were up slightly to 177.99 mmt, up slightly from 176.72 last month.  South American production was also cut in this report, with the reported problems in Argentina reflected in 1.5 mmt cuts in both soybeans (to 50.5 mmt) and corn (to 23.5 mmt).  These relatively large cuts in this months reports reflects the production problems Argentine farmers have experienced in their 2011 drought.  Its just been too warm and dry in some major production areas for too long, and that is leading to smaller production estimates. 

So, the bull market in grains isn't quite finished yet.  There may be more excitement yet this year, with only the 2008 highs above current price levels now since corn and soybeans ran to new 2 year highs again today.  

The total time that prices have spent above current levels were only about 6 weeks, but corn prices were $2 higher than current levels at the top, so we could have a long ways to go yet.  

Yes indeed, things are getting interesting again.  Get ready for more fireworks, as it's likely we could see significant upside potential in the near term, and once demand has been sufficiently cut - also significant downside potential as well (remember 2008???).  We could be looking at another dynamic winter in 2011, and today's price action might be the beginning of that dynamic run.  Get ready for some fun again, as times are still a quickly changin'!

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