This is a fun and predictable grain market.

[dan-the-farmer]

We have to remember we are at these prices because of weather and weather alone.

Drought in eastern Europe and FSU cut their crop sharply increasing demand for our corn and wheat.

Rains in Pakistan and India and now Australia has cut cotton production there increasing the demand for our cotton.

The heat of last summer reduced our corn crop to just below long term trend yields.

And now La Nina is causing drought in south America cutting the size of crop there.

Will we have a drought here?  Your guess is as good as mine, but there is a chance and the market will discount it before it happens.

There has not been a massive increase in world use of grains. It is supply shortage that is why we are up here. I think we still have rationing to do and also buying enough acres around the world to make sure we have a glut in the fall of 2011. If prices reach the old highs which they could with the help of crude oil moving up to challenge $140 and gasoline prices at or over $4/gallon, the world economy would be thrown into the next leg down in the recession which would cut world consumption just when we need a big increase.  Remember demand is normally reduced 9 to 12 months after the high, not as the high is made. 

If you think weather will repeat itself then you should look at buying insurance from Weather Bill.  From 25 years of trading the markets as a broker, I have not seen it happen in the past nor do I expect it will happen in the future. 

Anyone telling how high this market will go is only guessing.  It could be test the old highs for a double top or make new highs. The only person who could have told us was nailed to a tree about 2100 years ago.  But we have to be aware there are common signs that occur at the top and when we see them it is time to realize that the drop will be fast and will take us to a very low level that red ink will flow with every bushel of unpriced grain.  We are already seeing grain companies limiting the amount of grain they will contract from each farmer.  Thatr is flag one.  More flags are coming.  The final flag may be when the bankers cap loans for margin calls to grain companies like they did a couple years ago. 

Remember the higher the high the lower the following low.

[Jim Meade / Iowa City]

"Will we have a drought here? Your guess is as good as mine, but there is a chance and the market will discount it before it happens." I agree the market will discount it, but will it discount it accurately? In other words, will the spring price be high enough that if we have a drought it is priced in? I doubt it. My guess is the spring price will have some risk built in but if we actually have a significant drought the market will find it needs to pay more for each buyer to get the corn he needs. To me, that means that any hedge has to be able to withstand the same phenomenon we saw in 2010, a run up in price. Either a big bank account or forward sales or options. "Remember the higher the high the lower the following low." Maybe emotionally, but I don't think this is strictly speaking an accurate statement. Prices have been trending upwards over time, not pulling back to or even below prices of years ago.

[rightone]

figure about a $1.20 negative correction for paper corn.

The rest of it...not bad. 

Predictable?...well U said that. 

Fun? kinda the sameo sameo...just to dam predictable to be very exciting.

Always alot more action on the "I Love Lucy" shows than any of the paper commodity markets.

[dan-the-farmer]

What I have seen in looking at international grain prices, not the CBOT, from the mid 1800s to present is the low after a weather market is lower then the low of the year before the weather market.  We are trending up as long as the world economy does not get blown apart by outside forces to the grain markets.   High prices will destroy many livestock feeders and their banks may not be wiling to lend they the amount of money to cover their losses tied to high feed costs.  The last couple years have eaten up the balance sheets and the managers of the banks will be saying enough is enough.  Once cost of feed is low enough for them to make good profits I think someone will step in and replace those who do not make it and that demand will recover but it will take time. 

Another thing we must realize is no one is able to carry massive amount of crop from one year into the next.  That means the price will go low enough to clear the supply into someone's hands willing to finance owning it.

I do agree with you Jim that if  a drought happens, the funds will all want to be long and that will run the market higher very fast.

From a history stand point weather markets last 36 market sessions on average.  The shortest being 2 weeks and the longest 50 days.  I think if your are either shorting the futures or forward contracting, you should look at owning call options to protect from a price run or have stops above the market.  If you get balanced out you have to we willing to jump back in. 

another sign at top is caming soon is when farmers are trying to buy back their forward contracts rather then sell more.

[Palouser]

What do you mean by, "Another thing we must realize is no one is able to carry massive amount of crop from one year into the next.  That means the price will go low enough to clear the supply into someone's hands willing to finance owning it." Who are you referring to? Countries, user enterprises or producers? What is an example?

And what "massive amount" of crop are you thinking of? Or are you trying to say that demand for grain commodities would fall enough to create a surplus that doesn't seem to exist under current conditions? So far I'm not hearing of much rationing at the moment. This is a problem if there isn't a very good crop next year.

Depends on what crop you are thinking of, but I think wheat is already in the weather markets with no clear resolution for some time to come. And then it depends on the definition you are using for a weather market.