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Corn+Soybean Digest

Capture Emotional Rallies

Uncertainty heading into the 1998 growing season is at the highest level we've seen since the 1988 season.

With all that uncertainty comes volatility and what will likely be short-lived, emotionally driven selling opportunities. The trick: having the guts to sell when it doesn't look like the right thing to do.

The 1998-crop acreage mix is a huge unknown. By the time you read this, USDA will have released the Prospective Plantings Report. But don't get married to those estimates.

All winter, producers told us they were confident on what 75% of their acres will grow in 1998. The rest will be decided by the markets and weather.

Usage is another uncertainty. It looked so bullish through the first half of the marketing year, but that didn't prevent anticipation of a demand collapse, which kept dousing demand-led rallies.

For September through January, soybean crushings, as reported by the Census Bureau, were up 9.88% from year-ago figures. And the pace was intensifying - January crushings were up 10.65% from the year-earlier amount.

If bean crush continued to run at 9.88% over the year-ago pace through the end of the marketing year, yearly crush would total 1.577 billion bushels - 57 million bushels above USDA's February Supply & Demand Report estimate.

First-quarter hog numbers were at record highs, and total cattle on feed were at huge levels.

But poultry producers were pulling in their horns and actually drawing numbers down from year-earlier levels. Turkey producers were the hardest hit late in 1997 and in early 1998, with flock estimates down from 10% to 20%.

Dairy producers were also sacrificing milk production for lower protein and feed costs.

Add to that a surplus supply of alternative proteins (it doesn't matter which alternative; it's in surplus and competing with soybean meal).

The confusing factor: As bean crush blew market expectations away, soybean meal and soybean oil stocks remained steady. Most believed the bean crush pace would have ballooned stocks of both.

Bean export bookings through February were also disappointing, running 25.9 million bushels ahead of year-ago levels. USDA's estimate calls for a 78-million-bushel jump in exports for the entire marketing year. But meal and oil exports were red-hot.

Meal bookings through February were 69.3% ahead of year-ago levels, compared to USDA's forecast for only a 6.5% rise. In the last week of February, total soybean meal export bookings (total sales, shipped and unshipped) matched the entire 1996-97 export tally.

Oil export bookings were 49.4% ahead vs. USDA's forecast of a 22.2% rise.

So where's the uncertainty in those figures? Asia. Also, the question was being asked: "How long can the product export pace last?"

The answer: April. By late February, ocean-going product haulers were lined up at the port of Paranagua in Brazil. Bean prices in Brazil had dropped to the low-$5 range, and the world was anticipating plenty of cheap protein and soybean oil to be readily available by April 1. In this case, the world is right.

Now throw U.S. weather uncertainty into the mix. That will add volatility and keep the price outlook uncertain until the end of May.

Either way, the market expects at least a short-term weather-based rally.

Bottom line: Keeping up with the news of the day will be more difficult and more important than we have experienced in the last 10 years. Knowing not only the facts, but also what the market anticipated, will be key in determining if a rally attempt is a trend change - or just a doomed price pop.

Remember that without a full-fledged '98 drought, the underlying market fundamentals are price-negative. That means one of two things: 1) Prices will be driven lower from current levels. 2) Prices will have a difficult time sustaining any rally. That means we've got to be aggressive in capturing what will likely be short-term, emotionally driven rallies.

Unfortunately, that also means selling when it's most difficult to sell - at a time when it may appear a price rally is finally generating upside momentum. Discipline will be key - set your pricing objective and stick with it. If that means buying call options (either before or after the actual cash sale) to establish a minimum price, do it. There's uncertainty for the 1998-crop marketing year like we haven't seen since the 1988-crop year.

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