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Ray Grabanski: Bull reappears
The bull market has reemerged this week in grains, with new recent highs in corn, wheat, and soybeans. All commodities have regained the bull market status after small losses last week. The tight stocks scenario is playing out at the perfect time for farmers, as insurance prices of various commodities is now being set during the month of February.
This year for the first time in 2011, both the revenue price and the yield insurance values are being set (yield insurance prices were set by the government, not the market, prior to 2011) this month. That means that insurance prices for 2011 will be very high for all commodities, in fact, higher than the big bull market year of 2008, when prices for grains set all time highs that summer. But today, prices for corn are at least 50c higher than in 2008 during February, so it's likely that we will set new all-time high prices for commodities insurance price levels.
That should attract more acres into production in the US, a solution that the market desperately needs in 2011. Many people estimate that 2011 marks a year where we need at least another 5 million acres of productive land brought into production, and the market currently is bidding for it.
2010/11 is set to mark record high prices for commodities, with prices well above the 2008 levels for the yearly average price. This is indeed going to be a banner year for US farmers, as the high prices came as a result of problems in production in other parts of the world, not the US.
The US achieved above trend yields in wheat and soybeans, but below trend in corn which meant overall we had about average yields of major crops in 2010. But prices will be record high by a lot, with corn nearly 20% higher than its previous all time high price set in 2008.
So farmers are having another good year, and today it looks like good
prices will be offered out at least 4 years, with corn prices above $5.30
for the next 4 years (near $6 for 2011, but above $5.35 for 2012 through 2014). These are excellent price levels which will give farmers another opportunity to lock in very high profitable price levels for the next 4 years!
But timing will be everything. For now, the market is still in its bull market sentimentality, with prices still rising to new highs nearly every week. The bull market usually doesn't end with a whimper, but typically with a bang. So it's uncertain just how high this market can run in 2011.
In 2010, the market didn't top until late June/early July of that year,
so taken out to that long before this top in 2011 would put us at new all
time highs in grains (after all, we are already above the 2008 price
levels for February in all grains except wheat). So we have great
potential in 2011, and its likely producers will get an unprecedented
opportunity to price ahead future production at very high profit levels.
Producers must get themselves prepared mentally, though, if they are to successfully make these sales, as it will take a great mental fortitude
to sell against a bull market that has never been seen before. If prices
rally again into summer, we once again will be in very scary price
levels, with volatility that may never have been seen before. So get
ready for some interesting pricing opportunities, and some scary times in the marketplace, for with great uncertainty comes great opportunity. So, while we used to pray for great opportunity, today we may need to pray for the skills needed to respond to the great opportunity that is likely to come along!
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.