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The good ol' days?

Ray Grabanski 01/09/2013 @ 3:22pm President, Progressive Ag www.progressiveag.com

USDA will issue its final report on 2012 production, a year in which corn production lagged 'trend' by about 25%, a historically large shortfall that projected prices to new highs in the summer 2012. But anemic demand since then, especially by importers, has meant that even with that poor crop, we will not run out of corn at current prices.

Pro Ag estimates for yields in this report are for larger yields of both corn and soybeans, with corn yields likely to be hiked 1-2 bu/acre and soybean yields 0.5 to 1 bu/acre. Of course, the soybean yield hike is a bit more percentage wise than corn, and will lead to an even larger hike in ending stocks-to-use ratio, and likely therefore more bearish.

Stocks will also be an issue in this report, as USDA will 'guess' corn stocks and corn feed use by backing into it based on how much they thought was produced, and how much is left in bins now. The feed use equation might be interesting, as the last report indicated more feed use than expected and supported the grain market (at least initially after the report).

It is clear that downtrends of all grains are firmly established, with corn pushing below $7 nearby futures, and soybeans falling below $14 and new recent lows being formed on daily and weekly charts. Support levels so far at $6.76 corn and soybeans at $13.50-$13.76.  We've recently bounced higher off those levels, but can we hold the recent gains?

Of course, it's possible we could bounce from these levels in an extended move, but then again, it's possible that with a bearish report and favorable south American weather that prices will push through these support levels and run even lower. When looking at charts alone, the downtrend may actually accelerate at these price levels as there is very little support from here to the 2012 lows.  

Ultimately there are shelfs of support. However, the ultimate target lows is $5.11 corn and $11.38 soybeans -- prices that we expect we will see by spring 2013.

South American weather had been a concern before the new year as it was wet in Argentina prior to Jan. 1, and dry in parts of northeast Brazil. But weather forecasts have changed as they always do, and now northeast Brazil is forecast to be wet, and wet Argentina is forecast to be dry. Whenever the lucky shamrock of rain moves around and visits lots of different farmers, that usually means a good crop is on the way. So for SAM farmers, they may be getting just what the doctor ordered as far as weather is concerned. And it couldn't have come at a more perfect time!

So while the focus of the end of the week will be on the actual USDA numbers, its been clear that even in spite of a horrific US corn crop in 2012 that we will likely not run out of grain in 2012-13. A recovery by the SAM farmers from last year's drought ravaged crop could be the linchpin that pushes prices back to the June 2012 low levels -- before the US drought became obvious to most traders. Prices of corn have dropped nearly $2 from those summer highs, and soybeans are down about $4 from the summer highs. Yes, those were the good old days when prices were over $8 corn and $17 soybeans!!!  Those good old days are starting to seem like they happened a long, long time ago!

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