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Grain Prices Rally on USDA Outlook

February 26, 2011
Wheat prices lead the way this week as rumors of a big China buy take prices higher.
  

 

After a dismal start to the week indications of continued strong demand, despite rising prices, rallied grain prices on Friday. March corn closed 25 ¾ cents/bu. higher to finish the week up 2 cents. While lower for the week, March soybean prices closed 47 ¼ cents higer and wheat nearly 30 cents higher.
 
The lower prices seen throughout the week took out key low side barriers on a technical front. However, Friday’s strong close only strengthened the technical picture.
 
"We were down for the week, but we closed higher," says Jerry Gulke, president of the Gulke Group. "We were 40 cents higher on the beans Friday, so the market is concerned. What you have to look at is this drew another line in the sand a lot higher. We’ve had pull backs through some trendlines and support, and technicians will draw those lines. But you have to look at what it will take to close below the lows we saw this week."
 
If anything, it looks like demand may be increasing. Many trading insiders felt the sharp runups were over with the anticipation that the prices was high enough curb the world’s grain cravings after the markets dropped so far this week. Then USDA’s Chief Economist Joe Glauber made the statement this week at USDA’s annual Agriculture Outlook Forum that many countries are looking to increase food reserves. Others, who previously have not had reserves, are now looking to start reserving food supplies.
 
"He suggests things are going to be tight for the rest of this year. He even said the thing we’ve been saying that for the next year or so that things will remain tight. We likely won’t be able to replenish inventories in the United States and stocks worldwide.
 
"There was a chance in soybeans that we could have a monthly reversal. We took our January highs and January lows, but this rally Friday changed that. USDA didn’t tell us anything we didn’t already know, but I think the marketplace didn’t quite believe they wouldn’t do something with demand."
 

Continued Strength

Markets started the week on a severe downturn after a day off on Monday due to Presidents Day in the United States. That trend continued through the week. "To close higher for the week shows not only tremendous volatity, but is also how strong that corn market is."
 
That, to Gulke, means the market is forcing growers to look at the current conditions and get as efficient as possible to take full advantage of these high prices. So far there is no sign of any long-term letdown in prices as we approach the growing season.
 
At this point, he believes that will have to massive herd liquidations in livestock and dairy. To date, that isn’t happening either.
 

Initial Acreage Calls

At the USDA forum, Glauber also gave an initial look at the 2011 planted acreage. Currently USDA is anticipated an additional 9.8 million acres planted to all crops this year. Corn is projected at 92 million (+3.8 million from 2010), soybeans at 78 million (+ 0.6 million)and cotton is called at 12.8 million acres (+2.9 million). Wheat isprojected at 57 million acres (+3.4 million).
 
Gulke’s projections are at 91.5 million acres for corn. "Many of our clients have indicated they are happy with their rotations and they won’t switch those. But I think those numbers are pretty close.

 

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