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Economic woes let the bears run wild

The U.S. debt deal did little to calm investor and traders’ fears about the global economy, sending the equity and commodity markets into a virtual free fall.  The Dow lost over 512 points Thursday and is down 759.56 on the week to settle at 11,383.68 today.

Oil followed suit as demand concerns allowed the market to tumble $9.54 a barrel since Monday closing at $86.44. A flight to safe haven assets continues to benefit gold, which hit record highs and is up $24.30 on the week, ending trade at $1,649.10.  Switzerland and Japan have begun their own rounds of quantitative easing sending the dollar index sharply higher on the week. The agricultural commodities fared well in comparison to the equities markets.

Corn held its ground on a day that was horrific for most of the major markets. For the week, the grain is up 32 3/4 cents to end at $7.01 1/2 on the December contract. Yield concerns have been the driving factor as several private estimates have lowered their forecasts dramatically as a result of the heat wave during the critical pollination stage. Next week the USDA will release their revised estimates on 11th.  Exports were 778,500 MT, which is down 23% from the previous week and 19% from the prior 4-week average.

Soybeans were the weakest performer of the grains this week, losing 9 1/2 cents to close at $13.45 1/4. The potential for a large crop this year coupled with weakening demand from China has keep this market on its toes with the path of least resistance being to the downside.

Almost certainly, today’s economic meltdown did not help soybeans. Weather looks to be a non-factor in the weeks to come adding to the pressure. Exports were reported as 204,600 MT, which is up 5% from the previous week and up 13% from the prior 4-week average.

Wheat rode corn’s coattails higher this week adding 10 1/2 cents to the December CBOT contract finishing trade today at $7.25 1/4. Global competition from Russia and the Black Sea region, as well as a strengthening dollar, has kept a lid on price movements to the upside. Spring wheat did see a 4% reduction in its good/excellent ratings this week, which adds support. Exports came in at 472,300 MT, which is down 16 percent from the previous week and down 20% from the prior 4-week average.

A slew of poor economic news and global sovereign debt issues have led to a bearish sentiment overtaking the markets.  Today’s massive selloff could be signaling the end of the recent multi-year bull trend. A flight to safety has propelled real assets like commodities higher. Next week’s USDA Supply/Demand and Production reports will be very significant for grain traders as a driver for the weeks to come.

Since May we have seen a steady increase in basis for spot, September, and new crop corn deliveries. This was reflective of a short crop harvested last year and concerns over sourcing grain late in the marketing year. These concerns seemed to have peaked in the last week as grain buyers are more comfortable with their ability to source grain in the months leading up to harvest.

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Wheat continues to be a more competitively priced feed which should keep old crop corn stocks at more comfortable levels. Additionally, corn stocks should be supported with the export market continuing to disappoint.

There has clearly been a shift in market sentiment as concerns over 2011/2012 harvested acres and yield have overshadowed concerns about sourcing old crop corn. This shift has been reflected in the futures market, as the carry between SEP and DEC corn futures has widened to 7 3/4 cents at settlement on Thursday. Basis for old crop corn had an incredible run and we may be seeing the peak as we move towards harvest. One thing is certain: crop production will vary greatly between growing regions. Producers will be rewarded for identifying cash market opportunities in their local markets.

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