Market Perspective

The rally in grains has continued over the last two weeks. Dry conditions in the Southern Plains and decent export demand have finally forced the speculative commodity funds to cover about half of their record short position in the wheat futures. Corn and soybeans have also moved higher as investment funds have lightened their positions in equities and shifted some of their funds back into the commodity markets. Technically the market is now overbought and possibly due for a technical correction at some point.

On the fundamental side, when wheat prices were at their lowest about a month ago, we saw China, Egypt and Iraq all come in as buyers. It remains to be seen whether the demand for U.S. wheat will continue at these higher price levels.

Also, while there remains concern about the winter wheat crop conditions in the Southern Plains, last Friday the USDA came out with their initial production outlook for next year. Production is projected to increase slightly for wheat, corn and soybeans. Carryovers are also expected to increase for next year with wheat carryovers at 587 million bu for next year vs 558 million for this year. Corn carryovers are expected to jump to 2.11 billion bu vs 1.48 billion bu this year. Soybean ending stocks are also expected to increase to 285 million bu vs 150 million bu this year. As a result of the increases in carryovers the average cash prices are expected to drop significantly with average wheat prices expected to fall from $6.80/bu this year to $5.30/bu next year and average corn prices to fall from $4.50/bu to $3.90/bu. Again these are only estimates and we have a long way to go but this should temper some of the near term bullishness the market has been experiencing the last three weeks.

White wheat prices have now moved back to their November highs and Club is at its high for the crop year. We are still looking at winter outside but we did warm up enough for a week to see some of the winter wheat crop greening up. There is probably some damage to the wheat crop from the two cold snaps we had this winter but the damage does not look to be widespread at this time. I believe at these price levels, if you have any old crop it would be wise to price out at least half of what you have left. As for new crop, CRC offers protection at .50/bu below current new crop prices. If you have not priced any of your new crop yet, this is not a bad place to start with about 10% of next year's production. We have a long way to harvest but the rally we are experiencing should be rewarded.