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Financial 'Melt-down' Impacts Grain

Market speculators move to cash and drag on grain prices.

It's amazing what you can learn from the mind of a well-chosen farmer – one acquainted with the inside track of bond selling on Wall Street. For instance:

"Agriculture is still seen (by Wall Street) as a rock-solid bond investment opportunity" despite the stock market's financial mayhem, commented the Maryland farmer.

And, "We've already got a lot of our 2009 wheat crop sold at prices we couldn't afford not to take." At that price, the risk wasn't very high. If the farm came up with a short crop, they could buy wheat at harvest-time and make up the shortage.

But like many producers, this man worries about how much the current, on-going financial crisis will impact grain prices. That concern is justified, says Arlan Suderman, grain market analyst for Farm Progress Companies

Speculators are spooked

"Grain prices haven't traded supply and demand fundamentals for several weeks," says Suderman. "The markets seemed to find firm footing on Friday when the bailout package was announced. But anxiety began increasing once again as Congressional leaders started dragging their heels.

"Until the financial markets stabilize, we'll continue to see deflationary pressures as major financial houses liquidate positions to raise cash, which pressures prices, which translates into lower asset value, which requires them to liquidate more positions to raise more cash." Suderman emphasizes, "Congress needs to turn off the microphones, quit making speeches and get this package put together this week!"

What's ahead for wheat?

"There's a good chance we'll see a fall rally to price more of next year's wheat at a higher price – assuming Congress passes a good bailout passage," he adds. "Such a move could become very inflationary once again. However, I'd just not want to put a higher number in a crop budget.

"Projecting grain prices in this economic environment is like predicting where a hurricane will hit while it's a week away. Too many variables are involved."

"For budgeting purposes, I'd be very conservative," Suderman advises, "using a cash wheat price of $5 per bushel. Unfortunately, that doesn't make wheat look that profitable, which is why our Farm Futures producer survey shows lower wheat acres in the east for next year.

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