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Last week we talked about how markets were at a pivot point for corn and soybean markets, as both rallied sharply to new highs, yet there were some cracks in the bull market with some moves lower in corn (while soybeans continued to rally to new highs). Today, we have a market that so far this week has been variable at best, first rallying to new highs on Monday morning, only to close lower and add to those losses Tuesday. Wednesday's overnight trade was also sharply lower, making the bull market in jeopardy as we were on the verge of losing the upside momentum that the market has held since June. Wheat prices had already retreated significantly from the recent highs, but prices stabilized today by rallying sharply from the opening bell, and actually closing a little higher in both wheat and corn (and forming upside daily reversals).
This has confused the whole market situation - are we turning the bull market into a bear market? Or is this just a short term correction in what is a bullish market??? This reminds me of a saying one of my mentors used to quote, "The markets job is to keep everyone confused". Well, so far, the market is doing its job. But I think the point he was trying to make was that the market's job was to make there be the same number of buyers and sellers every day, with prices seeking out the level to make that true. If there are more people interested in buying than selling, then the price needs to go up. If there are more people interested in selling than buying, then the price needs to go down.
Up until earlier this week, there were more people interested in buying than selling. But so far this week, the sellers are emerging, too, as we approach the harvest of the US crop. The question of the week is, where will we end up for the week??? Last week wheat prices turned down while corn and soybeans were higher (corn modestly higher while soybeans were sharply higher). So far this week we have been lower for the week, but today's rally in wheat and corn to close higher could find some follow through strength technically.
So far crop prospects for the US remains fairly good, with the PRO Ag yield models still indicating a good crop of corn (166 bu/acre) and soybeans (44.5 bu/acre). Although these numbers are down slightly from the Sept. 1 numbers, they still represent record large crops for both corn and soybeans. However, the yield models only are as good as the actual harvest yields show, and so far those yields have been disappointing for corn so far, and above expectations for soybeans. So its likely that corn yields are smaller than the yield model projections (USDA is at 162.5 bu/acre), but the real question is how much smaller??? Some private estimates have come in below 160 bu/acre, and that would tighten ending stocks of corn a considerable amount. Soybean growers so far are reporting good crop yields, but some private estimates are also predicting smaller yields in the October report. If the yields are better than expected, where do these lower estimates come from???
There is some expectation that planted acreage will be reduced for wheat and soybeans in the October report, while the corn will see slight rise. Prevented planting acreage in the soggy wheat areas in ND/SD might be the culprit. We'll see, as its not always easy to predict what USDA will do from month to month. Weather is finally starting to turn favorable in the US, with mostly dry weather forecast for the coming 2 weeks that should allow harvest progress to move quickly along, even in the soggy western and northern corn belt. The dry weather is especially needed here, where soggy conditions are currently keeping producers out of fields. The only wet weather is in the dry eastern US, where dry conditions have recently been of some concern. Russian and Ukraine production regions are finally getting more widespread rain, with increasing forecasts of rain chances in the coming 2 weeks. That should allow planting of additional winter wheat acreage, and will help to allow germination of wheat planted into dry soils. Rains should greatly improve the potential for the 2011 Russian and Ukraine wheat crop.
We have a few USDA reports to deal with in the coming days, with the Sept. 30 final small grains report and stocks numbers out, and the October USDA report coming about 10 days later. These numbers should give us a better idea of the crop potential and carryout projections for the coming year. Stay tuned, there could be some surprises in these reports, especially concerning the October USDA corn and soybean yield numbers (probably the most important numbers). If yield reports are any indication, its expected to see rises in soybean yields, but a decline in corn yields. But once again, its often the reaction of the market to the numbers rather than the numbers themselves that are most important to future price direction.
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