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Ray Grabanski: Skyrocketing prices

Ray Grabanski 04/07/2011 @ 12:48pm President, Progressive Ag www.progressiveag.com

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.  

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