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Focus turning to South American weather

Ray Grabanski 12/10/2013 @ 8:24am President, Progressive Ag www.progressiveag.com

The market is quickly turning its focus to South American weather, as this is the growing season currently in the world with major implications for the supply and demand of commodities.  It especially puts the focus on them for soybean production, as this is the other major production area around the world for soybeans.  

So far the soybean crop is mostly planted in South America, with 95% of the crop planted, slightly ahead of normal.  It has been an uneventful planting season, with weather mostly cooperative with growers in getting the cropping season completed.  That usually means better production prospects, too, as weather has not been adverse in any region.  However, the Argentine weather has been forecast to be drier the next 7 days, but then turn back to more normal precip so even the current dry weather forecast may not be an issue.  

SAM weather the next few months will be critical, though, as this is like basically June for growers there, so the next 3 months will be absolutely critical for growers there - much like June, July, and August are critical months for the US growers.  Expect the market to be sensitive to any adverse development here.  

The USDA Dec. report is today at 11 am (after this article is submitted for publication), but usually this is not a big report with a lot of changes. They leave US production unchanged until the Jan report, and usually make minimal changes to the rest of the world.  One change that will need to be made is an upward revision in Canada's wheat and other grain production numbers, with huge upward revisions in their early Dec report (+10% barley/wheat production, +20% canola and durum).  They also may revise SAM corn and soybean production upward as the planting season went very well.  The average private guess has US demand improving in all crops, even wheat, in spite of Canada's upward revision.  That means anticipated reductions in ending stocks of corn, soybeans, and wheat.  The percentage change is most acute in soybeans, with expectations of stocks falling from 170 mb to near 150 mb.  Can that be correct?

If revisions are not as expected, there could be a reaction lower in the grains.  However, the soybeans (November monthly upside reversal) and corn (weekly upside reversal last week) both seem to be suggesting a turn up in price conditions based on technical analysis.  However, wheat is the opposite, with a weekly downside reversal last week (and looking more significant on charts than the corn or soybean signal).  Wheat is basically testing the year's lows, and may find itself pushing through them if the Canadian estimates are any indication.  

Pro Ag remains mostly bearish grains, but we have turned more neutral corn recently.  We've taken off 75% of corn hedges at $4.25 Dec, $4.26 Dec, and $4.11 Dec (25% each) taking over $2 profits on all these hedges.  Final Pro Ag downside price targets for this year's crops had been $4.25 Dec corn, $11-$11.10 Jan. soybeans, and $6 CBOT wheat.  With continued weakness in corn, lets take off another 25% of hedges at $4.01 Dec corn or better, and in wheat take off 50% of hedges at 6.21 Dec CBOT wheat.

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