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Ray Grabanski: Corn, soybean markets at pivot-point

Corn prices rallied 7 days in a row as of last Friday, marking the potential for a top in that market. So far, that may be confirmed by the recent price action of corn.  

We had a downside reversal Monday formed in corn, and recently corn has struggled with mostly lower prices in spite of a sharply lower dollar the past 2 days (based on FED talk of desiring inflation). 

The potential top in corn, though, is not very impressive considering usually tops mean sharp declines in a few days following the top.  So far, with the US dollar dropping the bottom out of it, the prices haven't declined as much as one would expect the past 2 days with a market top.  Perhaps this isn't it?

Soybeans also hit some price targets near $11, the highest price in virtually 2 years for soybeans and a target by Pro Ag the past few years for potential highs in soybeans.  These price levels are in spite of a record large crop still being forecast by the USDA, and early harvest yield results showing nothing but good yields for soybeans. 

That is in contrast to corn, where southern Corn Belt and eastern Corn Belt farmers harvesting early corn are finding disappointing yields.  While we have a projected large 350 mb projected carryout for US supplies, soybean prices are still holding up surprisingly well. That is because of the support lent by the corn market, and ideas that soybean production for the coming year will have to compete with some very attractive corn prices in attracting acreage.  

While prices of corn, soybeans, and wheat have rallied for nearly 3.5 months now, the markets of all three commodities are at high enough levels to top the markets of all three.  But we need to have some negative market news to make that top stick, and entice speculators to give up on long positions in corn, wheat, and soybeans (some huge longs in all three markets - especially corn). 

Pro Ag notes that recently the export news has slowed for the grains, with corn weekly export sales and shipments slowing considerably from the pace of just a few weeks ago.  Is it possible that corn prices have risen to levels that no longer are attractive to importers?  Or, have feed users found that prices are no longer competitive for them to feed animals as heavily as before?  

The negative news needed to finally mark the top of the market will have to be some news indicating that we will not run out of grain this marketing year.  That reassurance could come from better than expected corn yields in central, western, and northern Corn Belt states that would help make up for disappointing yields in southern and eastern Corn Belt states.  Of course, the worst yields are likely to come from southern states and early harvested corn that dried down due to lack of moisture throughout the year.  Heat during August has a tendency to produce smaller crops in southern areas, but that same heat has also made it impossible to hurt the corn crop with frost this fall, as most of the corn has already reached maturity in many areas.  Northern Corn Belt states especially should find very good crops of corn and soybeans, especially considering they all had the chance to reach maturity this year without the frost threats of recent years.  

Interestingly, Pro Ag yield models are advancing again in the most recent week, with corn yields up 1.3 bu/acre this week, back to the 168 bu/acre mark.  Soybean yields also reversed the recent weekly decline to be back up near the 44.8 bu/acre mark, near the highest yield projection of the year.  If corn and soybean crops are suffering in the US, it is not showing up in the crop condition ratings (even if yields are disappointing in early harvested corn).  Both of these yields are record large numbers again, and are opposite to the expectations of the marketplace, which seems to have already built a yield in that is in the 150's for corn.  Could we see a bearish surprise in the October report?  

It will be interesting to track the central and northern corn belt yields once harvest begins there.  So far, northwest IA is reporting some very large corn yields (along with soybean yields), and that is opposite to the expectation of the market at this time.  So perhaps there will be some bearish surprises yet in the market?

Pro Ag notes that the coming seven-day forecast includes the best chances of rain in Russian growing regions in central and eastern areas in some time.  That could also serve to pressure grains if the rain actually falls, but it might take a reversal in the US dollar's fortunes before grain markets can actually decline.  Note that cotton, gold, silver, and the dollar are recently supporting higher grain markets, and for now, the top has not yet clearly been turned in for corn and soybeans.  But is it just now a matter of time? 

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