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Sue Martin column: Grain prices rally again this harvest season

Change, change and more change. Sometimes the hardest thing to deal with as a trader is change. It is easier to think grain markets should not go up during the fall at harvest.

Change, change and more change. Sometimes the hardest thing to deal with as a trader is change. It is easier to think grain markets should not go up during the fall at harvest.

After a counterseasonal rally last fall, anticipation of large corn yields and higher-than-normal soybean prices, along with wheat having tested $9, many could not believe grain prices would do the same thing again this year.

What is behind this rally? Basis soybeans, the dollar's decline has been underestimated to its effect on the price of soybeans and the importance of stoking South American farmers to plant more soybeans this year. We have heard of their intent to plant 5 percent to 6 percent more soybeans, but they declined 11 percent last year. I think the market wants the 11 percent back.

This coming season, South America will be responsible for more than 65 percent of the world's exports in soybeans or soybean products. Central and northern Brazil are experiencing ongoing dryness. We are into a mild La Nina. Between a 5.5 percent decline in sown acreage and adverse weather, China's bean production may be down 30 percent. That's a big deal. Chinese hog production has peaked because of disease, and the country needs to repopulate its hogs. This means more corn and soybean meal demand. Chinese aquaculture uses wheat for protein, and that is not feasible this year, so soybean meal will be used. This past week, the Chinese government lowered import taxes from 3 percent to 1 percent. It needs soybeans, and the United States is the market until late January or February.

Because freight rates exploded in August to September, world buyers were slower to book soymeal, wheat and soybean needs. Only corn seemed cheap enough, adjusted in dollars, but soybeans adjusted in dollars are at 7.91 a bushel. In spring 2004, when soybeans were trading at 10.64, soybeans were at 9.57 in the world market, so while prices seem high, they can go higher because of the cheap U.S. dollar.

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We are into food flation. In the early 1990s, the fed printed lots of dollars, and business or manufacturing became more global. The goal was to improve Third World countries' economies and diets. Today, world economies are vibrant and meat in diets is common. Wheat is a major food staple. Nearly every major exporter has had production problems this year. Net importers have had production problems amid growing demand.

Tight supplies of wheat in the world meant better corn demand or usage on the food front as well as a feed. Australian wheat crops are enduring a drought for the third year. Australia is the world's No. 2 exporter. The U.S. is into planting season for hard red winter wheat and soft red wheat.

As the dollar declines, soy and wheat prices work harder. Soybean prices are the highest in history for this time of year. It's not all about speculation. It's about the need to feed the growing demand globally because U.S. industries found labor so cheap in China and India, by placing industrial needs in those countries, Mexico is coming along, we raised the standard of living for many in those countries. Now, in the face of adverse weather and a huge demand to supply, the expansion has taxed the world's ability to produce enough food for those countries.

China has become a major global power, thanks to the U.S. consumer. Food shortages are common in China. Meat and poultry prices up by 49 percent this summer-fall, vegetables up 23 percent and egg prices up 24 percent. These are big jumps for the Chinese consumer to absorb. More food is needed. China is known for selling their commodities high and buying or replacing with cheaper-priced commoditiies. Why hasn't China sold non-GMO corn into Europe and replaced with GMO corn from the U.S.? There are plenty of ships or vessels going back from the U.S. that could carry goods back.

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