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Ray Grabanski: Skyrocketing prices

04/07/2011 @ 12:39pm

After shooting to record levels this week, the corn market is taking a slight break, as it determines whether or not it is necessary to run even higher.

Grains rocketed higher last week, following the USDA report, which indicated stocks (not acres) was bullish. That report showed that 170 million bushels of corn stocks were gone that were expected to still be around. It was the fast pace of corn use, in the second quarter, that propelled prices higher, along with acreage numbers that were about as expected. The lack of larger acreage, then, was felt to not compensate enough for the loss of stocks in both corn and soybeans.  

Therefore the market shot sharply higher, with corn moving the most with $1 gains in three days. 

Now, we are testing those 2008 highs in corn, when price nearly breached $8 in some contract months, and new crop contracts for years out breached $7 futures.  Now, we see if the corn market can match those lofty levels.

It is interesting that while corn prices have pushed up to 2008 highs, soybeans have struggled at much lower levels than the $16.50 highs of 2008, with prices barely poking above $14 briefly recently and falling back to under $14 this week.  

Wheat isn't anywhere close to 2008 highs, as wheat ending stocks in the US are actually somewhat plentiful.  This is quite different from 

the 2008 situation when many were concerned we would run out of HRS wheat (which spiked to $24+ briefly in 2008).  Hard wheats didn't get close to those lofty levels of HRS wheat, but prices above $13 were common for SRW and HRW wheats.We are not even close to those lofty levels, instead hovering around $8 for 2011 SRW wheat and $9 for SRW for 2012, with HRS wheat at $9.50 or more for 2011 contracts, with KC HRW wheat basically the same price as HRS wheat.  

HRS wheat producers are actually a little upset with current prices, especially with the protein discounts that are basically pricing 12 protein, beautiful quality HRS wheat at the same price as corn!  Essentially, 12 protein HRS wheat is now the cheapest feedgrain on the planet, adding insult to injury to HRS wheat producers.  That is hardly the type of incentive for producers to plant HRS wheat this year.  

Ironically, though, the report indicated that HRS wheat plantings would be up the most, relative to traders expectations, with about 700,000 acres more than traders anticipated in the report.  That meant HRS wheat producers were planting much more wheat than last year, when prices seem to be indicating that HRS wheat producers don't need to plant more acres.  

But not everything has to make sense in this world. So, the March 31 acreage report is considered gospel for now, as that is what farmers intended to plant as of March 1. It will be interesting to see what the final June acreage figures will reveal after planting is complete, as intentions don't always end up as actual plantings.  

So far this spring has been a cool one for the majority of the corn belt in late March and the first week of April. However, the weather forecast has some change in that above normal temperatures are now forecast to impact much of the US in the coming two weeks.  

Especially important might be the southern half of the US, where planting progress might be rapid due to the below normal precip and above normal temps forecast for this region.  But northern areas are 

forecast to get above normal precip with above normal temps, and the precip may just negate the positive impact of above normal temps there.  

Northern areas like the Northern Plains are very wet, and that could limit planting progress in April.  As time marches on, we will know more about planting progress vs. normal in each weekly report, but for now we seem to be on track nationally for an early spring for southern areas, and a late spring for northern areas.  And HRW wheat can't seem to buy a rain, even while the rest of the country is mostly too wet or endowed with excellent soil moisture.  

Even the Former Soviet Union (FSU) countries have experienced more normal precip patterns since last summer, and early indications are they will be back to a 'normal' crop for 2011.  That could be huge for world grain supplies!  But for now, prices keep pushing towards the yearly highs, and in corn (and cotton), are testing all-time highs, as we move into spring.  

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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 services, call 1-800-450-1404.