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At an early August Strategies for Success seminar in southwest Minnesota, a farmer from North Dakota came up to me before the meeting started and said, "I have two questions, and I hope you can answer them both. First, what caused grain prices to fall so far? And second, have prices finally bottomed?"

I said that I would be glad to answer his questions, and I also offered to answer one he had not thought of: When will prices come back?

Prices went too high. The last $1.00-per-bushel rally in December 2008 corn futures had price trading up to $7.99 per bushel. At that high price, futures were trading over $1.00 per bushel higher than ethanol manufacturers or livestock feeders could afford to pay. When you get prices way above value, it is just a matter of time until usage slows down and prices move back to a fair value.

Weather conditions improved, and U.S. crop yield potential increased dramatically from mid-June to early August.

Crude oil and commodity prices were soaring higher as the flood of Wall Street money kept buying into the commodity markets. Corn and other grain markets had been pulled higher by the crude oil market. So when energy prices turned sharply lower, corn prices went down as index traders reduced the amount of money they had in commodity-based investments.

The U.S. dollar, which had been collapsing lower, suddenly turned higher in early August. The 3% rally was another reason for global commodity investors to exit long futures positions.

When you have record-high prices, it sets up the potential for record price corrections. The normal seasonal pattern in corn is for price to fall by 20% to 22% from the May-June high to the July-October low. When corn tops out at $3.00 per bushel, a normal 20% correction will take prices down 60 cents per bushel.

It is amazing to realize that corn futures fell further in two months this summer than corn was worth two years ago. This is a larger-than-normal price correction, which can occur when prices turn lower from such an extremely high price level. With increased global food demand and record-high open interest levels in the agricultural commodity markets, keep your seat belt on. This will remain a very volatile grain market. The fundamental factors that I mentioned above explain why prices moved lower; they do not mean prices are going to stay lower.

The 40% price correction in corn futures projects a low in the August-to-October time frame. This could also mean a major seasonal low in the corn and soybean markets. With ideal weather and a frostfree October to December, corn could drop all the way back to a $4.80 harvest low. The soybean market also fell about 40% in the last two months. With ideal fall weather, it is possible that November futures could set back all the way to the $10.00 price level.

Commodity funds took a beating in the corn and soybean futures markets this summer as they learned that markets go down twice as fast as prices move higher and prices do not go up forever. The current fund position is the lowest since the fall of 2007.

As long as you are in a cash position to hold onto your grain into the spring and summer of 2009, keep in mind that lower prices in the short term set up higher prices and profits in the long term.

Seasonal odds always project two key time periods for the corn and soybean markets to bottom. For corn, the first key time to project a low is in mid-August, with the second alternative time to watch for in early October. For soybeans the two key times to watch for a seasonal low are in late August or early November. Watch for a month-to-month higher close in the nearby CBOT futures to signal the low.

The long-term factors that created the huge 2008 bull market are still in place. Global demand continues to grow as developing nations buy more food. The U.S. dollar could rally all the way back to 76% to 79% and still be in a long-term down trend. As long as the U.S. dollar stays below 80%, U.S. agricultural exports are in a very competitive position. If you are buying U.S. soybeans using euros or yen, the current drop in futures has taken prices back below $9.00 per bushel when you factor in their strong currency value.

Funds are seasonal traders and will likely start to build long positions again this fall.

With light farmer sales, aggressive end-user buying, and funds stepping up to buy again, the market is poised to rally back into the spring and summer of 2009.

At an early August Strategies for Success seminar in southwest Minnesota, a farmer from North Dakota came up to me before the meeting started and said, "I have two questions, and I hope you can answer them both. First, what caused grain prices to fall so far? And second, have prices finally bottomed?"

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