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Pressured dolllar brings grain price support

Corn closed 4-cents lower on the day and 26-cents lower on the week. This is the lowest weekly close since 4/24. After hitting 6-month highs last week on planting worries and a bullish USDA report, corn has since sold off over 50-cents. With the crop now in the ground and growing, the market was forced to look at demand. Weak export demand and a collapsing feed industry was too much for the corn market to handle. The chicken industry has been cutting production for over a year due to poor margins and is currently running about 5% behind a year ago.

June is the 22nd consecutive month that the hog industry has been running with negative margins. Currently, producers are losing around $30/head for a combined total of around $60 million/ week as an industry. (The Chinese producer is only losing $20/head!) The U.S. cattle feeder is currently losing around $50/ head. Cattle on Feed came in at 96% (of a year ago) as of June 1st and the Cattle Placed in Feedlots during May was 86% of a year ago. This is the lowest May Placement figure since 1996. The Dairy producer is still losing $100/ month on every cow! Okay, enough with all the bearish news. On the bright side, ethanol margins are finally improving. The recent run in gasoline prices has helped margins to improve to around 30-cents bushel. This is the best since last October. Also, there is still a good chance that we ended up losing acres this spring.

The dollar has obviously been under pressure and this has drawn in large sums of money to our markets. If this continues, we could see corn prices hold around these levels. Corn prices are about 10-cents away from a major trendline that has been intact since last Dec. The corn market should try to hold at these levels until the report. The big problem in my opinion is what happens after the report. Most people are already expecting a bullish acreage figure and still the market has broken 50-cents in only two weeks. The liquidation of animal herds is not a U.S. phenomenon but a global problem. If the report does not show a larger than expected decrease in acres and the weather outlook remains benign, corn could continue to sell-off. If corn prices start to close under these technical areas, this could trigger another round of fund liquidation.

As of Tuesday, the Commitment of Traders Report showed the funds were long 170,000 contracts (850 million bushels). If you are looking to buy some calls before the report, I would look to buy the Sep. $4.50 calls for 10-cents next week. If you have not gotten caught up on sales, give us a call early next week and we will find a strategy for you.

SOYBEANS

Old crop soybeans closed 35-cents lower on the day and 66-cents lower on the week. New crop soybeans closed 38-cents lower on the day and 70-cents lower on the week. Tight Old crop supplies and a bullish USDA report last week helped drive old crop beans up towards $13 and new crop soybeans to $11/bushel. A late start to planting and the old crop tightness has caused many analysts to estimate a low carryover again next year. Although this could certainly end up being the case, I would be very cautious on this presumption. First of all, these estimates are based on record demand projections for next year. Again, this could happen but I don't see the fundamentals (right now) to support this theory.

Currently, soybean oil stocks are at record levels. I have already mentioned the situation in the animal sector. So, domestic demand is likely to fall once again next year, so who is responsible for this increase in demand? Currently, the USDA and the Chinese National Grain and Oils Information Center (CNGOIC) are both estimating a decrease in Chinese soybean imports next year. The USDA is estimating a small decrease and CNGOIC is estimating a decrease of 3 million MT. The argument is that soybean meal exports and soybean exports will be huge to compensate for the drought in Argentina this year. Chinese soybean meal usage was down 15% for May versus last year and the Chinese hog producer is losing money due to the Chinese government propping up grain prices.

Who is consuming more soybean meal this year than last year? I won't argue that meal exports won’t be large this fall and winter, but what about next spring? Brazil and Argentina will likely grow another crop next year. Currently, Argentina is projected to increase soybean acres to a record level of 20 million hectares as wheat acreage is expected to decline once again. With normal crops next year, we could see South American production increase by 20 Million MT. What about the U.S.? We will see what the USDA says about soybean acres on the 30th, but right now it looks like acres should increase. The USDA is estimating that global stocks of soybeans will increase by 10 million MT or 20% next year. This is with record demand and without an increase in U.S. acres. As with corn, soybeans are approaching some key technical levels, and will need to hold here to avoid further liquidation. The funds were long 114,000) contracts (570 million bushels) of soybeans and 54,000 contracts (10.8 million tons) of soybean meal.

WHEAT

Wheat closed 5-cents lower on the day and 29-cents lower on the week. Good weather across the globe (exception being Argentina) has helped the wheat market break as we head into harvest. Large global wheat supplies should keep rallies tempered for now. Export demand has remained weak and this will need to improve after harvest to help the wheat market stage another rally. If corn prices continue to come under pressure in the coming weeks, we could see wheat prices break to new contract lows into July. After harvest, we will need to see how demand and the global wheat markets are faring.
I know that a lot can change. We could grow a bad crop in the U.S. or bad crop in Brazil or a bad crop in Argentina or have bad crops in all three. I certainly don't want to be too bearish here, but it seems like everyone is leaning one way. In the long run, I still think grain prices will remain relatively high. Growing population and improving diets will likely challenge the farmer for years to come. I am focusing on the next 6-12 months. With animal numbers declining rapidly, it will take time to rebuild this demand. I believe there is going to be a lot of opportunity for the American farmer in the coming years. I am just trying to help the farmer from being forced to sell after large break this fall, rather than looking to re-own at those levels.

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Corn closed 4-cents lower on the day and 26-cents lower on the week. This is the lowest weekly close since 4/24. After hitting 6-month highs last week on planting worries and a bullish USDA report, corn has since sold off over 50-cents. With the crop now in the ground and growing, the market was forced to look at demand. Weak export demand and a collapsing feed industry was too much for the corn market to handle. The chicken industry has been cutting production for over a year due to poor margins and is currently running about 5% behind a year ago.

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