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Triple price bottoms rarely hold

Ray Grabanski 12/07/2011 @ 12:17pm President, Progressive Ag www.progressiveag.com

Corn tested recent lows yesterday, but bounced nicely from those lows to close 12 cents higher on the day.  The only trouble is we are dealing with what looks now like a triple bottom. As we mentioned a few weeks ago, triple bottoms rarely hold.  While it's likely we will bounce some from these recent lows, the market could have trouble holding those support levels. 

The problem with the market fundamentals, as we have stated all fall, is not with the US supply/demand situation, as the US produced below average crops of wheat, corn (-9% from 'trend'), and soybeans (-5% from 'trend'). Instead, it's the world production numbers that continue to be revised higher that is holding prices back from any type of rally.  In the recent week, news that China had larger corn and feed grain crops than expected along with Canada's announcement of higher wheat production than expected added another set of bearish numbers to the world mix.  This continues a trend of above average crops from Russia/Ukraine/Kazakhstan to Australia, and that has put a damper on price improvements since August.  

Corn prices have dropped back into the $5.70-$5.80 support levels on Dec corn, with March trading about 10c higher.  Corn also has lost its premium to CBOT wheat, with SRW now fetching a slight premium per bushel finally (but still priced less per lb).  It was amazing that wheat prices were at a discount to corn for so long, as that provides strong incentive to add wheat to the feed ration for many animals.  It's likely that was accomplished in many areas, especially areas of the world closer to feed wheat supplies than corn supplies.  Pro Ag notes that corn exports have slipped off a cliff recently, with slowing of exports reflecting the fact that corn is perhaps the highest priced feedgrain in the world.  

Wheat demand also has waned in recent weeks for exports, probably reflecting the increased world competition coming from the rest of the world for the export share.  The Black Sea region has been especially strong in its export program, and that is leaving wheat exports in the US at slow levels thus far this year.  That also represents a drag on prices, and keeps the market slow.  

Soybean prices are now following the weather woes of South America (SAM), and so far SAM weather has been mostly good (in fact, excellent through most of planting.).  Many private forecasters have raised SAM production prospects already (as has USDA), although some dry areas are developing in northern Argentina this week.  However, the 8-14 day forecast puts rain back into that region again. So, if accurate, that rain would alleviate what little drought problems have emerged thus far.  Overall, SAM production prospects look better than average, at this stage of the game. 

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