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Ray Grabanski: Profitable 2010 due to FSU drought

Grains have all rallied to profitable levels again, with corn over $4 futures, 

soybeans over $10 futures, and wheat over $7 futures.  These are profitable 

levels for production of the 2010 crop, especially with the crop looking like 

yields will be above average for nearly all crops.  The US has a windfall this 

year, producing an outstanding crop and getting a good price for it as well.

It is coming at the expense of the FSU counties, who are experiencing perhaps 

their worst drought in a century.  Intense heat is hitting most of the countries 

of Ukraine, Kazakhstan, and Russia that is burning up crops and is likely to 

lead to a significant decline in total crop production in these areas.  That has 

already pushed prices up much higher than they were earlier this year, and it 

giving producers a chance to sell in the top third of the last 12 months prices 

right now.

Wheat prices have risen even higher than the top third of the past 12 months 

prices, in fact, they've risen to the highest price since fall of 2008, when 

prices were coming down from the mountaintop of the extreme high prices of the 

2008 crop year.  We are now looking at wheat prices offered for 2011 that will 

attract acres away from corn and other crops!  

That makes it exciting for the corn and soybean market, too, as wheat prices can 

finally attract some acreage away from other crops, instead of the other way 

around.  For years, we have been losing US wheat acreage, only to see those 

acres show up in soybeans and corn.  The crop year 2011 should be the opposite, 

as 2011 wheat prices at $7.48 July CBOT should attract acreage away from $4.33 

Dec11 corn and $10.08 Nov. soybeans.  Its wheat that is now trying to bid away 

acres from corn and soybeans (and other crops), as we bet on the come that Us 

exports will increase significantly in 2010/11 marketing year. 

Basis is awful, as futures prices have climbed so fast cash prices haven't kept 

up with the move of futures markets.  Farmers with no knowledge of basis have 

been willing sellers of cash grain, essentially giving away $.50-$1 to those 

grain traders who will work the basis to their advantage.  Clearly, this is a 

market where you price grain in the futures market, and let the basis stay open 

until prices cool off from current torrid values.  Then when basis improves, you 

can effectively lock basis and convert to a cash market price.  But don't be 

writing cash contracts today, as you are only giving away some serious dollars 

to the merchandizer who knows how to work basis.  That is one of the main 

reasons to use a marketing firm such as ours, in that you don't give up the easy 

money (which basis typically is for capturing a better price for your grain).  

Clearly, US growers who are expected to produce a record large yield in wheat 

crops, a record large corn crop yield, and a near record large soybean yield 

will benefit from higher prices caused by the decline in the FSU countries of 

Ukraine, Kazakhstan, and Russia.  This windfall will benefit growers who will be 

rolling in the dough from these profitable price levels for grains.  But as 

always, we'll have to remember to price something when the market is as good as 

it is getting right now!  Good prices and high markets don't last for ever, so 

it's a good idea to price something when this opportunity comes along.  

Something to also consider is that this rally is allowing us to not only sell 

2010 grains at a profit, but also 2011 and 2012 crops (wheat especially can be 

sold at $7.50 or better for both years).  One should be somewhat conservative 

about multiple year sales (making sure inputs are locked in, too).  But still 

these are some very good profitable levels for grain sold in this area, and is 

something that needs to be considered.  Corn is above $4.30 for 2011, and above 

$4.30 for 2012 corn.  Soybeans are trading $10.09 for 2011, and Nov12 at near 

$9.90.  By far the best sale opportunity is in wheat, with over $7 wheat futures 

available for 2011 and 2012 - a price that will compete well in attracting acres 

away from corn and soybeans.  

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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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