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Ray Grabanski column: Wheat markets up; corn, soybean rally

Wheat Wheat prices were mixed to high during a volatile week in the market. Wheat began higher hitting a limit up on all three exchanges Feb. 25 and 26. Minneapolic Grain Exchange lead the way pulling the Chicago Board of Trade and the Kansas Cit...

Wheat

Wheat prices were mixed to high during a volatile week in the market. Wheat began higher hitting a limit up on all three exchanges Feb. 25 and 26. Minneapolic Grain Exchange lead the way pulling the Chicago Board of Trade and the Kansas City Board of Trade higher on fears over the tight supplies of high quality spring wheat.

Gains were aided by some international news that Kazakhstan will stop their exports of grain. This is supportive of the U.S. wheat market, as we have been competing with them for exports of wheat to Egypt. By mid-week the market had turned widely volatile while the CBOT and KCBT were higher more because of fear than supply. MGEX fell sharply on a pullback from recent highs.

This was the first trading day in a while in which the markets did not hit a limit higher or a limit lower. This means with two more consecutive days the limits will shrink back to old levels. Later the market turned sharply lower with MGEX leading the downside on pressure from long liquidation. MGEX front months are showing evidence of topping out. This could mean that we have found the top of the market and this has opened it up to more volatile trading sessions.

U.S. Department of Agriculture export inspections were within expectations at 17.2 million bushels. This is with preliminary expectations of 14 million to 19 million bushels. This puts us at 79 percent of the USDA's projections for the marketing year. Primary destinations were Japan and Korea Republic. The USDA announced a private sale of 14.7 million bushels of hard red winter wheat to Iraq for the 2007 to '08 marketing year. USDA export sales were within expectations at 11.3 million bushels. This is with preliminary expectations of 9.2 million to 22 million bushels. Cumulatively this puts us at about 1.16 billion bushels for the year, with a projection of 1.2 billion bushels. We are in the 38th week ofthe marketing year.

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Grains rallied to inflation-adjusted highs in Minneapolis wheat, pushing above the inflation adjusted high of $24 wheat (actual highs Feb. 25 were $25), so perhaps funds are finally done with the Minneapolis wheat market. These prices are astronomical compared to what one could have guessed just a month ago, but here we are, and it didn't take long to go from $14 to $25, did it? Note we also have gone above inflation-adjusted highs in crude oil as well ($90 crude was the target, and we've been at more than $100 for two months). Since Feb. 25's high, Minneapolis March futures have dropped $5 in less than three days.

Trading on Feb. 26's closed at $20. If we've finally posted the high at the inflation adjusted level of $25 in Minneapolis March futures, that doesn't necessarily mean that May can't rally back up to that level, and perhaps even the CBOT and KCBT wheat can test somewhere close to those levels as well. But it appears funds are willing to pitch hard red spring wheat at the inflation adjusted highs, and move on to another inflatable commodity. Is this the end of the line for wheat? We will have to watch the next few weeks closely.

Corn

Corn futures were sharply bullish this week with spillover from neighboring grains and with outside market support. Corn opened strong after setting new contract highs overnight. With corn still lacking the fresh fundamentals to move on its own, spillover from rallying wheat and supportive outside markets pushed corn sharply higher. Despite last week'sacreage projections, the battle for acres is not over and corn must keep up with other grains in insure acreage this coming spring. Feb. 26 and27 brought about a consolidative trend after recent gains; without neighboring grains providing support corn fell lower. However, losses werelimited by strong, long range fundamentals and inflationary concerns.

Feb. 28 brought about sharply higher prices once again with speculative buying and technical strength pushing corn higher. Strong outside market supported gains and that coupled with bullish a bullish outlook helped corn finish sharply higher. The market wasn't impacted by exports which fell within expectations. Corn itself still lacks the fundamentals to choose its own direction and is expected to continue to be the follower of the grains relying on outside markets and neighboring grains for direction.

USDA export inspections were neutral at 46.6 million bushels. This was above preliminary expectations of 42 million to 48 million bushesl. Also, this was above what was needed to stay on pace for the year. Primary destinations were Japan and Korea Republic. USDA Export Sales were neutral at 30.6 million bushels. This is with preliminary expectations of 23.6 million to 37.4 million bushels. Cumulatively, this is bullish as we are well ahead of pace for the marketing year.

Corn may be the late comer to this party, as current stocks estimates of 1.4 billion bushels leave the funds long, only a little over 2 times the corn carry-out. Perhaps they'll have to wait until next year to play with the cornMarket. With a cut in ethanol usage expected this year yet, we may need acut in acreage larger than 4 million acres to produce a critical shortage incorn stocks in 2008 to '09, at least to the point where the inflation-adjustedhighs near $15 corn can be close to being breached. Otherwise, we look forcorn to gradually follow soybeans through this spring and summer, withfurther direction depending on weather this production season.

Soybean

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Soybean futures ran to new highs once again this week, shaking off early pressure from collapsing wheat. The week started off strong on Feb. 25 only to be stopped by a dramatic turnaround in neighboring wheat. That slowed progress on Feb. 26 and 27, but by Feb. 28 everything had turnedaround once again. Friendly fundamentals, strong outside markets and afresh influx of speculative buying interest pushed old crop soybeans above$15.00 and new crop above $14.00. The ability of futures to finish abovethis psychological resistance area encouraged buying through the end of theweek. Additionally, the testimony of Federal Reserve Chief Ben Bernanke, sliding dollar values and the rally of crude oil to new all time highs strengthened ideas of inflation. Feb. 28 saw the release of monthly U.S. Census crush data, which was slightly friendly although in line with trade estimates. Total crush in January came in at 160.3 million bushels, down slightly from December but well above last year at this time. Total bean oil stocks fell slightly. Wheat values ran to their inflation adjusted highs from the 1970s ($24) can the same thing be done in beans?

Export sales continued to strengthen this week as Chinese buyers remain interested. Export inspection numbers on Feb. 25 were reported at just more than 23 million bushels. Those are down, but still enough to meet USDA projections. Export sales on Feb. 28 were impressive at 30 million bushels, near the middle of trade expectations. We expect sales to remain strong, particularly since China continues to see problems with their oilseed crop because of weather.

Inflation continues to be an issue in all the grains, evidenced by wheat's quick retreat after hitting inflation adjusted highs in Minneapolis. Given the size of the long fund and speculative positions, the next market might be oilseeds, as the soybean market is even more dominated by the speculative element than wheat (about 9 times the current soybean carry-out versus about 6 times wheat carry-out). While new crop wheat will begin harvest in June, a new U.S. soybean harvest won't occur until late August or September, so there is plenty of time to play with U.S. soybean futures markets. Given what already occurred in the Minneapolis hard spring wheat market, its scary to imagine what funds can do to the soybean market, especially when supplies get tight this summer. Perhaps we're in for another threat of imports from South America before this is all done.

At this point, markets are unsettled to say the least (note the $2.50 price range in many wheat contracts Feb. 27). The inflation adjusted highs in soybeans are somewhere around $40 per bushel (taking the June 1973 high of $12.90 indexed up to today's dollars). If hard red spring wheat is any indication, then soybeans could hit $40 on the nearby contract, and new crop 2008 in November could trade at half the price ($20 per bushel). Watching commodities trade opened up a whole new set of possibilities for the marketplace the coming year.

Small grains

Small grain producers continued to benefit as malt barley buyers raised bids as high as a reported $9.50 in some areas. This is in direct response to competition from other grains, with both wheat and soybeansoffering attractive prices, depending on your location. Durum prices arehigh as well, although they have not moved as much in response to the mostrecent wheat rally. Supplies of durum still are in short supply, however,and those considering contracting should still look for an average premiumto what is being offered for hard red spring wheat. Wheat prices did fall in the later half of the week, but many growers have already committed to producing a substantial amount of acres. Barley and durum will have to overcome that if they don't want to end up in the same situation next year.

Dry beans

Price offerings for both old and new crop dry bean contracts show the potential to continue rising, although they was basically steady. It does not appear that buyers have been able to get much of a commitment for acres in 2008, and because of that they have their work cut out for them. It is true that some producers will grow because dry beans fit into their rotation and harvest schedules that much better. But for many producers, soybeans are going to be the more profitable choice. We look for at least $2 to $3 more dollars of upside, as inflation and outside interests continue to push all grains.

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Oilseeds

Oilseed markets skyrocketed higher, following the lead of soybeans, but also benefitting from the ongoing interest in vegetable oil markets. Winnipeg, Manitoba, canola futures ran to new highs. They are now nearly 50 percent higher than the previous high, posted in 2002. The strength of the past few days may call for a small correction, but the move is temporary to say the least. Cash markets are following along quite well and are expected to remain strong until well into the summer. With soybeans in short supply,canola and sunflowers in particular will be called upon to fill in supply gaps for crush purposes. This will allow those markets to move sharply higher during the next few months. New crop prices will be no exception and we expect that will to continue at least until the March planting intentions report.

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