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Bearish Reaction to Bullish USDA Report

The report Friday was more friendly corn and soybeans than expected, with more cuts of corn production in Brazil (-3.5 mmt) and soybean production (-2 mmt) that translated into more demand for U.S. grain, and less stocks than expected (-92 mb corn and -38 mb soybeans than expected for 2016/17). That meant it was a friendly report for corn and soybeans. However, the market reacted by going higher after the report, but quickly faded and actually closed lower than it was trading before the report. Wheat production was hiked 2.7 bu/acre yields for winter wheat, a huge hike in one report so that now winter wheat yields are projected at 50.5 bu/acre, shattering previous records by far. That gave us a more bearish wheat report than expected, with 8 mb larger stocks than traders thought. 

While the USDA report was friendly for corn and soybeans, and the initial reaction bullish, the market quickly faded from the highs as selling emerged. In fact, you could say it was a bearish reaction on the day to a rather bullish report. Perhaps the $3+ rally in soybeans and the $.80 rally in corn has already built the South American crop problems into the market. We are a bit concerned that this could end the bull market and have had to price some grains as a result. We hit the target of $11.75 November soybeans to price the next 20% of soybeans for 2016, pushing us to 60% priced on report day.  

It was surprising to see USDA so aggressive in raising the winter wheat production estimate so much in one report, 2.7 bu/acre. Typically this yield is hiked 0.5 bu/acre or less per month, and it takes many months for that large a change to occur. Not this year. Right now the yield estimate is even larger than our yield model, which was indicating a 50.2 bu/acre crop until we experienced a drop in the June 13 report.  

Speaking of that crop progress report, crop conditions yesterday were a mixed bag, with winter wheat conditions declining 1% to 61% G/E, and the wheat yield model dropping slightly (-.15 bu/acre) to 50.05 bu, now below the recently hiked yield of 50.5 bu/acre (up 2.7 bu/acre from last month). This estimate might even be on the high side.

Soybean conditions were up 2% from last week to 74% G/E, but yield models actually were down slightly (-.10 bu/acre) to 46.2 bu, slightly below the current USDA projection of 46.7 bu/acre. But corn conditions were unchanged at 75% G/E, and the yield model rose 1.86 bu/acre to 168.12 bu/acre, now equal to USDA's projected 168 bu. So really there is nothing conclusive here. However, subsoil and topsoil moisture levels did decline last week, with topsoil down 8% to 78% adequate/surplus, and subsoil down 3% to 82% rated adequate/surplus. So that is somewhat concerning as well.

Yet, prices have risen over $3 in soybeans and $.80 in corn over the past few months, making some sales attractive. Pro Ag advised buy, buy, buying this winter at the lows, and now finally we are advising selling some corn and soybeans again. That included 60% sales of old-crop soybeans and 60% of new-crop soybeans lately, and 20% of 2016 corn. More sales might be coming shortly. 

Weather today includes a bit more rain in the eastern Corn Belt over the next 14 days, but relatively dry in the western Corn Belt, with warmer-than-normal temps as well that are still a bit concerning to the market. However, we have taken a turn to the negative side recently, especially after a relatively bullish corn and soybean report.       

Thank goodness for runs higher as we get into the growing season, and also that we’re starting to forget the large carryouts we have been burdened with to start this season (the bearish talk all winter long). It has given us a chance to sell at a profit in 2016 - something not imagined by many just a few months ago. We just need to take advantage of it and sell something while it lasts. 

Target $4.48 July to price 25% of 2015 corn crop in catch-up sales as well.  

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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years, by far.  See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com.  Ray is also President of Progressive Ag Systems, Inc., one of the largest crop insurance agencies in the Northern Plains.  He also is President of Progressive Ag Law, PLLC and is a licensed attorney in MN and ND specializing in Ag Law.  

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