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Louise Gartner: New highs

Last week, the major grain markets put in new 2-year highs, before getting weekly reversals down, with corn and beans seeing an outside week lower. Selling was prominent as traders moved to the sidelines to wait out the important crop reports that will be released Wednesday morning. 

USDA is slated to release their monthly supply/demand report, the final small grain summary (production), the quarterly stocks report and the winter wheat plantings report on Wednesday morning. The trade is anxious to get the numbers out, as there are many questions to be answered, particularly with corn. Corn supplies are still expected to show a 15-year low. Soybean yields are expected to be higher again following a very good harvest.

Winter wheat plantings are expected to be up about 3.6 million acres, with about 2.0 million more in soft red and 1.6 in hard red. While wheat supplies are basically at a comfortable level, it’s still the amount of quality wheat that headlines the wheat story this year. 

Speaking of which, values for hi-pro spring wheat surged this week as the generally tight supply situation was magnified by transportation delays across the northern plains. Heavy snows have stalled farmer movement and rail shipments, creating some very tight supply situations for mills that need the high protein wheat for blending. Values were reported up over $1/bu early in the week before stabilizing late in the week. 

This is probably just a harbinger of things to come. Obviously, the mills are operating hand-to-mouth when it comes to the high protein wheat, and supplies will only get tighter as we move into spring when prices tend to peak seasonally. End users tend to do their buying for the summer in late spring which will cover their needs until the harvest rolls in, and is typically why prices tend to peak at that time. 

According the U.N.’s World Food Program, global food prices hit all-time highs last month, surpassing the spike high from 2008. They reported that while cereals including rice had not yet hit the 2008 level, sugar and meat prices were at their highest since its records began in 1990. During 2010, wheat prices rallied 47% after a drought in Russia, low quality crops in the US and Canada, and then floods in Australia. US corn was up 50% and soybeans jumped 34%. 

Does any of this reach the ears of policy makers who continue to push ethanol subsidies and CRP?? 

While the US and the world bemoan high food prices and the inflationary pressures it causes, not to mention more people going hungry, there is very little talk about the 33 million acres in the US that taxpayers pay to sit idle. There is also the huge shift of food grains being burned for fuel, mostly corn for ethanol. Taxpayers subsidize ethanol production in addition to the subsidies directly to corn producers; those ethanol subsidies that were expected to expire on Dec. 31 were quietly re-instated into the budget even while politicians promised budget cuts. Yes, that’s right; here in the US, the same citizens that pay record high prices for food also subsidize the non-production of food, the transfer of food to fuel and the transfer of acres to corn to be used for that fuel. 

Where is the logic?

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss. Past performance is not indicative of future results.

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