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A 'bear' soybean flag forming?

Grains have shown some independent strength recently, with corn rallying from a low of $5.80 to run to $6.65 Dec.  Soybeans gained from $11.50 to over $12.50 before losing some of that gain recently.  Now it appears that the two markets with Wednesday's weakness have broken out of a flag formation to the downside on daily charts, a negative development indeed.

That is in spite of some disappointing yield reports out of the northern Corn Belt, where corn yields and even some soybean yields have been disappointing to producers who expected better yields for the 2011 crop.  

Now, the private forecasters are talking about reduced yields in the November crop report (mostly due to disappointing yields in northern Corn Belt locations).  Pro Ag would not be surprised to see corn yields reduced 3-5 bu/acre in the Nov. report!  Soybean yields might not be quite so bad, but some private forecasters expect soybean yield reductions as well.

The key question, though, is what will happen world-wide to projected production and carryout levels, as world production seemed to bounce back nicely from the poor 2010 yields.  No where is that more prevalent than in the FSU countries, with the Ukraine and Russian crops in particular reported at very large levels.  We note that Russia and Ukraine are taking more and more of the export market, leaving US exports to be woeful so far to start the year.  Also reporting large crops is Australian wheat production, where this week some strong production numbers were coming out of that region of the world.  

So, while the US numbers appear to be friendly right now (as they have been the last few reports), world numbers might not be so friendly.  Can the bullish US numbers overwhelm the market, and push prices higher? 

Or, will bearish world numbers mean traders will turn their attention away from the US production problems in 2011, and instead focus on world S/D numbers?

It's hard to imagine why the US could see declining prices when we don't have a good crop here, or why we are breaking out to the downside of weekly and daily charts flag formations now - when harvest is nearly over.  However, charts are charts, and some downside objectives IF we follow through to the downside are very low indeed, down at $5 corn or less and $10 soybeans!!!  While charts suggest these very low numbers, it's hard to imagine what could trigger such a price reduction with the US crop production numbers likely to be reduced in the November crop report.  

Perhaps the world financial situation gets tenuous with the European debt crises not being solved in the next few months? Or, perhaps world production of grains will be hiked enough to offset disappointing US production numbers? Or a combination of both?

Weather-wise, we've had an almost perfect harvest of grains, such that soybean harvest is 80% complete in late October and corn harvest is 65% complete, both well ahead of normal.  That's quite a change from the last few years, as fall field work is going to be completed nicely this fall given the nice weather across most of the corn belt.  The one exception might be the eastern corn belt, where wet conditions have been prevalent the past few weeks.  Planting was late there as well, and left the crop to mature late and now we are encountering wet field conditions.  Overall though, the crop appears to be coming off in very good shape this fall.  

Even winter wheat seeding is moving up to near normal levels after the severe drought was abated somewhat by fall rains in early October that covered most of the HRW wheat belt.  Then, recently more rains have fallen that are improving germination and planting conditions.  Overall, perhaps it will be like the FSU drought last summer, that quickly turned to much improved conditions for 2011 (starting in the late fall).  

Unless we've just encountered a false break out of the bear flag formation, Pro Ag targets remain for lows at $4.50-$5 corn, $10 soybeans, and $5.50-$6 wheat lows for the season.  

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The information contained, while not guaranteed as to accuracy or  

completeness, has been obtained from sources we believe to be reliable. 

The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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