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Keep eyes to the sky

In yet another flip-flop of weather forecasts, the past two days weather forecasts have
shifted from one calling for warm/dry weather in the Corn Belt to one of wetter than
normal with cooling temps over the next two weeks.

This is a critical time for the corn and
soybean crops, as corn is in the process of filling cobs while soybeans are in perhaps an
even more critical period - pod filling. If this recent forecast is correct, it could reverse
some of the damage done to crops the past three weeks - and couldn't come at a more critical
time for crops.

For the past three weeks, crop conditions have been declining for corn and soybeans, with
Pro Ag yield models dropping below both 'trend' and USDA projections the past few
weeks for the first time all year. Really, this is the first big threat to the 2007 corn/bean
crop. On Monday, July 30, crop conditions declined for most all major crops, with corn
conditions down 4% in good/excellent ratings the week ending July 30, soybeans (-3%),
and HRS wheat (-7%), with Pro Ag yield models dropping for all 3 crops. This was the
biggest grain yield decline in 2007, with the Pro Ag projected corn yield down 1.5
bu/acre to 150.2 (the lowest of 2007), soybeans down 0.31 bu/acre to 41.8 bu, and HRS
wheat down 0.72 bu/acre to 39.3 bu. Only HRS wheat is still suggesting yields above
USDA July projections, so with this recent decline it might lead USDA to leave most
yield projections unchanged in the August report, while most analysts had been expecting

With adverse weather forecast for the next 2 weeks just 2 days ago, it could have been a
return to bull markets in all grains. But the past 2 days US weather forecasts have
changed! In today's weather runs, it's surprising how much precip is included in the 6-
14 day forecast, with above normal precip now forecast for almost all of the Corn Belt.
This couldn't come at a more critical time, as it just might salvage a soybean crop that
was on the brink of pushing towards sub-normal yields. If weather had continued
through August as it had been in late July, we could have had a replay of the 2003 crop
year, when soybeans quickly went down in yield potential, leading to $10 futures by the
following spring (doubling prices in 6 months).

Anyone who doubts what impact this could have on prices only needs to look at some
recent price movements. Soybeans dropped over $1 in just two weeks with some
improvement in crop conditions in mid-July. At that time, forecast hot dry weather
disappeared, and more rain fell and in more places than was forecast at the time we hit
summer highs of $9.495 November soybean futures on July 13. By July 27, prices had
dipped to $8.34 for a net drop of over $1.10! There is no shortage of volatility in these
markets as indicated by the 2 week soybean price change of over $1.10, and one only has
to look at the wheat market for recent signs of bullishness in grains. Wheat prices rallied
to new highs last week ($6.64 Sept. Chicago on July 26), ironically just a day before the
soybean bottom. In very unusual fashion, grains are not moving together in price as the
spurts of bullishness are not the same in all commodities.

While corn prices have dropped almost 20% since the beginning of the year, soybeans
and wheat as of just a few weeks ago were up almost 25% due to the high number of
acreage switched to corn in 2007. In the last two weeks, it's apparent that grains do not have
to move in the same direction, as soybean prices dropped $1.10 while wheat prices were
moving to new highs.

While hot/dry weather could have hurt late season row crops nationwide yet in 2007,
hot/dry weather now will have little or no impact on wheat crops. The impact even on
corn is rather limited, as most corn has completed pollination and is in the process of
filling cobs. While corn and wheat is beyond the stage where they can be hurt in a major
way by adverse weather, soybeans are not, in that August weather typically is the most
important month of the year for determining final yield. Similar weather occurred in
2003 when soybeans had an above average crop coming in late July. But hot/dry weather
the last week in July continued all the way into September, trimming soybean yields over
5 bu/acre, from the mid-July number with a late summer drought. While soybeans were
devastated by a hot/dry August, corn and wheat still had almost trend yields (or average
crops) in 2003. So far in 2007, it appears to be a similar weather pattern to 2003 (good
weather into late July, potential adverse weather thereafter?). But with the recent change
in forecast, its likely that row crops could instead recover from the recent three week
reduction in yield prospects.

A weather forecast change now to cooler/wetter conditions in the Corn Belt couldn't come
at a better time, as we just don't have the oilseed acreage planted in 2007 to meet
demand, and are already projected to use the majority of carryout even with average
yields. With over 8 million acres of soybeans switched to corn this year, we cannot
afford to have a below average crop yield. If we lost 5-10% of the 2007 oilseed crop
yield potential in August due to adverse weather, a major bull market would have been in
store for commodities this fall - led by oilseeds. But good weather in August could have
the reverse result - sharply lower prices for corn and beans into harvest. That makes
sales on this recent weather change even more important, as we could see sharply lower
prices into harvest if soybean crops improve 5% yet into the end of the crop year (2
bu/acre). For every bushel rise in yield potential, the national average farm price can
drop from 30-60c, so there is no more critical or important time for soybean growers than

Keep your eyes on the skies for the next month, as that might determine the
appropriate marketing strategy for remaining oilseeds and sunflowers.

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.

In yet another flip-flop of weather forecasts, the past two days weather forecasts have shifted from one calling for warm/dry weather in the Corn Belt to one of wetter than normal with cooling temps over the next two weeks.

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