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Week of extended losses

Grains extended their losses this week, with a recovery early week only to be met by increased selling yesterday that led to another washout in market price levels.  

We are now breaking below support levels that held last week prior to the recovery early this week.  Now it opens up more downside potential in the grains, and it is becoming a little scary when looking at charts at how low prices can go as we commence harvest of late season fall crops.

Charts indicate potential targets for corn at $4.50-$5 and soybeans at near $10, with wheat also basically priced as a feed grain it could see price pressure as well if corn loses value.  The big dog of the grain market is always corn, and early this year USDA's aggressive cuts in projected corn yields led to a price rally all the way into July and early August.  USDA has now cut yields to 148.1 bu/acre, well below 'trend' yields of near 162 bu/acre.  Usually if there are aggressive cuts in the August and Sept. reports, the cuts continue into the Oct, Nov, and Jan reports so that those yields eventually end up at the lowest point in the Jan final yield report.  However, this year USDA was so aggressive in cutting yields that it appears that from this point forward, it is even possible that yields will be hiked in future reports.  

Currently, Pro Ag yield models suggest a corn yield at 156 bu/acre, with USDA already over 1 standard deviation smaller than the current yield model suggests.  The odds of a yield being as small as USDA's current projection are less than 15%, and those odds continue to be reduced as we get closer to harvest of the crop.  Now, yield models won't seem to matter as much as actual harvest yields, but so far those yields seem to be coming in better than expected.  "Better than expected" is the acronym for larger yield projections coming out of USDA, and that does seem to be possible.  While the exceptional heat in July did trim corn yield potential by 'tipping' corn cobs, the exceptional cooling in August followed by intermittent showers seems to have filled corn cobs in fine fashion - with large diameter cobs seemingly making up for some of the pollination problems in July.  Overall, it seems the worry that we would 'run out' of corn in the world is quickly abating, especially considering the good yields coming out of many parts of the world in 2011 (including Ukraine, Russia, and the EU).  

The turnaround in world yield potential has been substantial since July, with many countries piling up improved yield prospects in 2011.  Since early August, US weather has also improved with cooling temps a major change which likely impacted soybeans the most.  While USDA aggressively cut soybean yield potential 2 bu/acre in the August report to 41.4 bu/acre, today in late September it seems clear that USDA was too aggressive in these cuts.  Pro Ag yield models still indicate a soybean crop much better than recent USDA projections (even after a hike in the Sept report to 41.8 bu/acre), with the yield prospects now indicating a crop of 42.5 bu/acre.  

Early harvest yields of soybeans also seem to be coming in better than expected, with the crop actually filling out nicely in August and September.  USDA seemed to be anticipating the July heat to continue in August, but shortly after the August report the heat was evaporated from forecasts.  That meant a landmark change in the US yield potential, and prices have not looked back from the summer highs at that time, to be now pushing near $1.50 lower in corn and $2 lower in soybeans.  And harvest is just beginning, so prices could very well drift much lower IF harvest yield numbers continue to come in better than expected.  

This could be the odd year where the lowest yield projections of the year are recorded in August (for soybeans) and Sept. (for corn).  That is indeed odd, but never before has USDA been so aggressive in cutting yield projections below 'yield model' numbers so early in the season.  That is leaving many marketers frustrated, but whenever corn is over $6 and soybeans over $13 it has been a marketing opportunity.  That opportunity extended to multiple year hedges this summer, as these lofty price levels were offered for 3-4 years out in futures prices.  We sure hope you took advantage of some of these price levels with sales, as it now appears these price levels might be just distant memories!  

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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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