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Weather, U.S. Dollar supporting corn market highs

Traders did not have a need to think about things today. Forecasts moved the Monday and Tuesday rain event into a late Saturday through Tuesday weather event. That reduced the timeframe eastern Corn Belt farmers have to "catch up" on these late plantings.

Western Corn Belt farmers are done with corn. This weather event is of key concern for the eastern guys. We have heard pretty consistent talk many Illinois guys are around 2/3 complete. They need until Wednesday to finish corn. If rains hit by Monday they are out of luck. Also, keep in mind much of this week's planting was selected ground. The low spots are what they're getting into this weekend and early next week. As of this past Sunday night Illinois was 20% complete while Indiana was 24% complete. Now, we must keep in mind this is not an "acreage shift" issue. Most farmers are still sticking with what was planned for corn. The problem with late planting is a yield issue. We showed clearly last week that late corn plantings historically mean little chance of hitting that important trend yield. Will that relationship be the same with these new genetics? Last year's late plantings managed yields just under trend with good weather. We would imagine with average weather there could be a noticeable effect on yield.

Crude oil and corn value: This will be the highest weekly crude oil close since November. As we have noted many times before crude oil prices and unleaded gas (RBOB) prices affect ethanol prices. The bushels that go into ethanol plants are actually valued at a higher level than regular corn for feed or exports. We have been watching the rise in crude and unleaded gas closely but have to point out ethanol prices have not enjoyed the entire rally. While the value of ethanol has risen in recent months it has only risen slightly. With that in mind we would suggest most of the recent rally has been driven by corn fundamentals and the U.S. dollar rather than crude oil.

U.S. Dollar and exports: While crude oil is connected to corn via ethanol prices and soybeans via bio-diesel, the US dollar may affect exports. The U.S. dollar is a factor to consider with all commodity markets. Changes in the $ side can impact who buyers choose to supplies their needs. We do have to note the exchange rates are not the #1 factor for exports. There is not always a clear relationship between exchange rates on actual export levels. Buyers of grains will generally buy if they need it. However, there is no doubt a falling US dollar may be beneficial to our export program. One example of this may be South Korea. This substantial buyer of US corn has seen the "Won" appreciate against the U.S. dollar by 8% in the past month. From early March, it has appreciated 25%! That gives them more buying power (excluding the price of corn + freight).

Direction: We have no problem respecting the current bullish trend. Weather and the U.S. $ (exports) are supportive right now. Corn futures closed at their highest levels yet of this uptrend and they are right in doing so. Today we did take the first bearish corn trading position for some time. Keep in mind this market has not been tested by a successful week of planting yet. There has not been a 20% one-week advancement in planting yet. While we are not bearish in the short term, we had noted July corn did have trouble holding above the 430 level this week. We have a short position and are only risking a small amount. We do not feel a top has been put it yet. For producers we are happy with our limited 35% hedge position. It has a 420 floor in place and will producers will benefit from a rising market all the way up to 540.

Cattle: We would imagine traders were disappointed this week’s cash cattle was only steady with last week. It also has to be pointed out wholesale beef started the week strong but ended lower. With that in mind we still view this market as a neutral to bearish market. Prices have made half the move down from spring to summer, and once June hits, the second half of the decline may be seen. We are currently only trying to sell on a breakout lower. This market may attempt a move to fill the gap at 84.50 in the short term.

Cattle on Feed Review: During April we did see some optimism return to cattle country. Cash cattle prices, at the end of March, were $83. They peaked around Easter at $88. Heck, that price was even enough to give outgoing cattle a small profit. With that in mind the industry expected placements of new calves and feeders into feedlots to increase. The average guess was for Placements to be 6.1% higher. They came in 4.2%. We knew Marketings of outgoing cattle from feedlots would be less. That was no surprise and was directly due to the fact Placements in fall and winter were lower. The average guess was to see Marketings 6.0% smaller than last year. They came in 6.9% smaller. There may have been a few extra cattle, held by bullish feedlots, that were not sold and pushed over into May. The bottom line is placements for cattle finishing in the fourth quarter were less than expected (bullish) while we may have a few more cattle to market this month than expected (bearish). We see little market reaction to this mixed report.

Rich Nelson is director of research for Allendale, Inc., in McHenry, Illinois.

Traders did not have a need to think about things today. Forecasts moved the Monday and Tuesday rain event into a late Saturday through Tuesday weather event. That reduced the timeframe eastern Corn Belt farmers have to "catch up" on these late plantings.

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