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South America's weather eyed

Corn harvest is nearing completion, with most of the U.S. ahead of average pace on corn harvest as well as most other crops.

Corn harvest is now 95% complete vs. 91% normally, with sorghum 97% harvested vs. 91% normally, and sunflowers 80% harvested vs. 93% normally. Most crops will not have another report issued as they are over 95% harvested now, with the final report yesterday for the year. Cotton is 78% harvested vs. 83% normally. So, the harvest is going well for most all U.S. crops.

The winter wheat crop is also in much better condition than last year, as the nearly normal 2013 year has replaced the drought year of 2012, and winter wheat therefore is getting a good start in the 2013 fall. Winter wheat is 93% emerged vs. 89% average, with ratings 62% G/E vs. 63% last week.

So, winter wheat is in much better condition than last year at this time (only 33% G/E). We have a pretty good start to the winter wheat crop in 2013/14.

Attention is turning toward South American (SAM) weather, as the growing season in SAM will determine the crop size there. More soybeans are likely to be planted on more acres this year, as the soybean/corn price ratio approaches all time record-high levels (nearly 3.10). That is attracting acreage away from corn and toward soybeans, as the ratio is much higher than the typical ratio of 2.30; with the typical range of 2.0 to 2.6, the ratio higher than 3.0 is extreme in attracting acreage away from corn and toward soybeans.  

Even projections for U.S. acreage next spring call for much higher soybean acreage and much lower corn acreage, responding to the extreme price ratio that we are now seeing.

So far, weather in SAM remains uneventful, with fairly widespread precip amounts covering most of both Argentina and Brazil. Temperatures are mostly normal to below-normal, leaving little stress to the just planted crop in most areas (or to the crop just being planted). Overall, it looks like a good start to the 2013/14 SAM growing season.

Demand for soybeans remains strong, with China continuing to purchase soybeans from the U.S. at a torrid pace. They also are buying corn, with the price attractive for importing corn from the U.S. as well. But the U.S. has ample supplies of corn, as opposed to the relatively tight supplies of soybeans. And so we see the extreme price ratio between corn and soybeans in current months.

The question is, how long can this extreme ratio exist before we get the type of acreage shifts necessary to correct it back to its normal range?

Pro Ag remains bearish, but less so in corn as we've taken off 75% of hedges at $4.25 Dec, $4.26 Dec, and $4.11 Dec (25% each) taking from $2.11 to $2.37 profits in these hedges (huge profits). Final Pro Ag downside price targets had been $4.25 Dec corn (which was hit repeatedly the past month), $11-$11.10 Jan. soybeans, and $6 CBOT wheat. With continued weakness in corn, let's take off another 25% of hedges at $4.01 Dec corn or better.     

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