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Published January 11, 2011, 02:43 PM

Grain prices 'on the bubble'

For months, area farmers have watched grain prices climb. Now, grain prices “are on the bubble,” holding roughly equal potential to rise even more or to fall drastically, says Frayne Olson, crops economist/marketing specialist with the North Dakota State University Extension Service.

By: Jonathan Knutson, Agweek

For months, area farmers have watched grain prices climb.

Now, grain prices “are on the bubble,” holding roughly equal potential to rise even more or to fall drastically, says Frayne Olson, crops economist/marketing specialist with the North Dakota State University Extension Service.

Olson spoke Jan. 4 in Devils Lake, N.D., at the annual Lake Region Extension Roundup.

“There’s little room for error,” he says of current world stocks and use.

“The smaller the margin for error, the more and more nervous the market gets, which means you can have a lot of volatility,” he says.

That nervousness has pushed up prices — and will push them even higher if stocks turn out to be smaller than expected or if grain use is greater than expected.

“If we have any weather problems along the way, people are going to get very, very nervous,” boosting prices, he says.

On the other hand, the nervousness will decline — and prices will slump — with greater-than-expected production or smaller-than-expected use.

“If we have a good crop, people will get comfortable and prices will suffer,” he says.

Benefit to waiting

Farmers who have waited to sell grain have benefitted, he says.

“It’s nice to sit back and watch the price go up a little bit every day. But at what point do you pull the trigger? At what point do you say these are pretty good prices” and sell? he says.

“Can it (the market) go higher? Yeah, sure, it can. I can paint you a scenario where prices go up fairly substantially,” Olson says.

“But I also can paint a scenario where we see significantly lower prices, too,” he says.

Olson says his best guess is that upside potential slightly exceeds downside risk, but that “we’re getting very close to the 50-50 point” where the two are balanced.

Olson cautions that his Jan. 4 comments were based on information available then and that prices could significantly be affected by several U.S. Department of Agriculture reports issued Jan. 12.

Three general trends to keep in mind:

- Growing ethanol production continues to push up demand for corn.

- The weak U.S. dollar makes it easier for foreign customers to buy American wheat, and a drought in the Black Sea region hammered wheat production in that key wheat-growing area.

- China continues to import more U.S. soybeans. However, rising inflation in China could cause its leaders to change the country’s ag policy, Olson says.

“Right now, your bottom line is extremely dependent on what the Chinese government decides to do about their inflation,” he says.

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