President, Progressive Ag
www.progressiveag.com

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Testing recent lows?

Grains have had some time now to digest the recent USDA
report, which basically found smaller US crops (wheat, corn, and soybeans), but
also found that world production offset much of the reduction in the US
crop.  That left supplies adequate
to survive until another year, with the world relying on the improved crops in
Ukraine, Russia, and other parts of the world to 'get through' this marketing
year. 

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Historic low corn/soybean ratio eyed

USDA's Nov. report was out this week, with another round of smaller U.S. crop sizes, but larger world crop production.  

The U.S. corn crop was reduced another 1.4 bu/acre, as Pro Ag expected, with corn yields now estimated at 146.7 bu/acre, well below 'trend' yields (about 9% below 'trend').  This is a virtual crop disaster for modern times, with the new triple-stacked corn that we raved so much about in its earlier years no longer a strong factor in this crop year.  

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Grain markets reach stalemate

Grains prices seem to have reached a stalemate, with corn teetering between $6.30-$6.60 Dec corn and soybeans from $11.80-$12.50 in price.  

Wheat is basically "corn2", with wheat prices at a discount to corn in Chicago SRW, and essentially priced at a corn equivalent (or a slight discount to corn).  

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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.  

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Rally, but negative world news

Grains have rallied recently, with Tuesday's limit up move in corn (40c gains) and large rally in other grains pushing grains up in the recent 7 day period.  That has pushed corn 70c above its lows of the Sept.30 report day, a recovery that was nice and means a lot to the bottom line of corn producers!

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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.

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Yield hikes seen for next report

Last week we talked about how the USDA Sept. report may hold some surprises.  Well, the crop sizes in corn were about as anticipated, with the 148 bu yield and 5 bu/acre yield cut were well anticipated by the trade.  

However, the soybean production estimate was a surprise in that the yield included a hike in production, to 41.8 bu/acre.  That further indicates that USDA "jumped the gun" on its August huge cuts in production, with a nearly 2 bu/acre cut in yield in that one surprising report.  Now, USDA has to quickly reverse that ill-advised yield 

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The September Report is coming

The Sept. USDA report is coming on Monday, and many are asking whether or not it will contain any surprises like the last report.

Traders will be watching for shockingly low soybean production numbers, and a significant decline in corn yields of over 5 bu/acre.  Based on yield models at the time, the huge drop in corn and soybean yields was unfounded, but the heat recorded during July for the US was enough to make USDA drop significantly both yield numbers.  

Now, as the Sept. report rolls along, typically it follows that the 

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Corn yield drops seen

While July was a very hot month in 2011, August did not continue that heat, effectively leaving a 2011 crop that is likely not nearly as damaged as the big drought years of 1980, 1988 or similar type years.  

Instead, August weather cooled down to allow crops to fill moderately well in spite of below normal precip across most of the Midwest.  It was the limited rainfall that hurt crops in August, and possibly reduced crop sizes a few bushels in corn and fractionally in soybeans based on yield models.  

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