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Ray Grabanski: Corn, soybean markets at pivot-point

09/23/2010 @ 10:13am

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.  

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