RAY GRABANSKI COLUMN: Wheat prices rise sharply; corn prices up
Wheat Wheat prices gained sharply this week, up 40 to 50 cents or about 4 percent to 5 percent for the week in another strong performance. However, this was less than the energy market gains (8 percent) or corn (8 percent), so actually wheat fell...
Wheat prices gained sharply this week, up 40 to 50 cents or about 4 percent to 5 percent for the week in another strong performance. However, this was less than the energy market gains (8 percent) or corn (8 percent), so actually wheat fell in value relative to energy or feed grains.
One could conclude that weather is not the reason for this rally, but instead its good old fashioned speculation and the surging energy markets. Pro Ag foresees another 2 to 5 days of higher markets to finish off this blast off top in all 3 markets, but has no idea where the end will be ($159 crude oil? $6.80 to $7.50 Decemer corn? $15 to 17.50 November soybeans? $10 wheat?) It's likely we are within 5 to 15 days of forming decade-long highs, and we may not see prices go higher than this for 20 to 30 years. But what excitement this will generate.
The best advice we have for now is let the market run higher, with sell stops below the market (like 20 cents below tonight close in wheat) to make major sales when that break begins. Every day, adjust the sell stop to 20 cents below the previous days close so we can catch the market within 20 cents of the highest daily close once it does top.
Start with a sell stop on 10 percent of one crop year, and add 10 percent for every day that it closes 10 cents or more higher (for example, a sell stop on 20 percent the second higher close, 30 percent the third higher close, etc). Hopefully, we will have 5 to 6 more days of higher closes and we can wrench another 30 to 90 cents out of the market using sell stops rather than straight sell orders.
Corn rallied to new highs this week, closing at $6.78 December corn, up 52 cents or about 8.3 percent for the week. This was a huge price change in just one week,with markets rallying sharply the last 3 days of the week. Weather was not the reason for the price hike, as other than Iowa (too wet), most of the country had fairly decent weather with the soggy east mostly drier than normal and the southern U.S. with some decent heat that helped accelerate crop development. Crude oil rallied over 8 percent for the week, and corn simply kept pace with this torrid crude market rally.
This is a great opportunity for corn grower to price a fair amount of corn the next few weeks. December 2008 corn is trading $6.78 on June 6's close, and December 2009 and December '10 both are trading around $6.40 futures. While new highs were established June 6 in crude oil, its possible the market can run as high as $7 to $7.50 futures corn before we finally top this thing. Funds have complete control of the market, and its likely they will not be done with it until they are done with it. The speculative flow of money is all to the buy side, and every short trader is forced to cover those shorts and the market just keeps going higher.
This creates a situation short term where the market can go much higher than anyone expected (remember hard red spring wheat in February?), and once the market is topped it might be surprising how much it can drop in a short period of time. Over the next two weeks, producers are going to need to price a significant portion of crop if they want to be selling in the top one-third of the market. Can we do it?
Soybeans rallied sharply this week (up 83 cents November 2008), with 6 percent gains for the week in one of the best performances ever for soybeans. Soybeans across the country are in relatively good shape, with planting progress "catching up" and good rains (in Iowa, excessive rains) on top of virtually all of the crop across the country this week.
If you are looking for reasons for the price spike in weather, you won't find it this week as while Iowa weather was adverse, most of the rest of the country included good weather. Instead, this week's rally is tied almost exclusively to the crude oil market, which gained 8 percent to 9 percent for the week.
Pro Ag thinks the market might be forming a blast off top, and we are excited about finally hitting close to our $15 or more targets for advancing sales of the next 3 years of crops significantly.
We hit our targets to price another 10 percent of 2009 corn at $6.15 December 2009 corn futures and $13.75 November 2009 to price another 10 percent of 2009soybeans late last week. Let's use a trailing sell stop to price this as we might have a runaway bull market that could run higher three to five more days (10 cents or more daily gains in corn? Twenty cents or more daily gains in soybeans?), with our sell stop close only based on the December 2008 corn futures at $6.54 stop close only and November 2008 beans at $13.99 stop close only for June 6. We will move that stop close only up to within 15 cents of the daily corn close and 30 cents of the daily soybean close to keep it tight.
As soon as the market breaks, we will be priced within 15 cents (corn) or 30 cents (beans) of the highs if indeed this is a blow off top.
Our blast higher this week propelled December 2008, '09 and '10 corn and November '09 and November '10 beans to new highs and kept the bull market alive and kicking. We may have a runaway bull market that is blasting off a market top this month, and it is going to be difficult now that there is little resistance to determine where the top will be. It's kind of intimidating to recall that funds blasted Minneapolis wheat from $15 all time highs to $25 in just weeks, and it forces us to have a whole new deal of respect for what the corn and bean market can accomplish in a short time during this blast off top. We could see gains averting 10 cents per day corn and 20 cents per day soybeans over the next 2 to 5 days, and maybe even 5 to 20 more days once the funds get control of the market. Add a little adverse weather in (which might be all we had yesterday), and it could be an interesting month. We could make highs in June in at least one of these 2 bull markets (corn or soybeans) for the next 20 to 30 years in June '08.
While new crop hard spring wheat blazed to $13 in February, now in June we are trading at $8.77, more than $4 lower or about 33 percent in just 3 to 4 months. If corn peaks at $7.50 in June, we could be trading $5 or less in October at harvest time. That would make any sale in today's price range (or even anywhere between $6 and $7.50 corn) a genius move. Not only are we faced with selling decisions on 2008 crop (and old crop left), but also selling decision on 2009 and 2010 crop as corn futures are offering $6.20 to $6.40 for 2009 and 2010 crops and soybeans are over $14 for 2008, 2009, and 2010 crops. In the next month Pro Ag is interested in selling a majority of all 3 crop years at any price level above $6 corn and $14 soybeans. Of course, the trick now is to try to capture as much of this blow off top as possible as there is a great difference between selling $6 corn versus $7.50 (just like $10 hard red spring wheat versus $13 hard red spring wheat). It will be virtually impossible to predict the highs, but to try to get within 5 percent to 10 percent of the highs is a doable goal.
Pro Ag expects crude oil to top somewhere between $140 to $170 per barrel (a pinpoint guess is $159), and grains will follow regardless of what the crop is like growing in the fields. Hang on, we are in for a fun, profitable ride the next month -- that is as long as you are willing to sell at these profitable levels. On June 30, we'll find out whether it was corn (more than 88 million acres?) or soybeans (74 million acres planted?) that will put its 20 to 30 year top in place this month. The one that did not get the acres might be the one yet to top in 2008. Get ready for some fun.