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A bucket of bearish news has emerged

Recently, we talked about how the soybean/corn price ratio had gotten out of hand for the 'actual' fundamentals vs. the USDA projected fundamentals.  USDA is still using intended acreage figures from March 1 surveys - and an eternity of new information has emerged since that time: 

1) The planting season has been great, meaning 10 million acres of PP will no longer be a reality.  Net result is another 8 million acres are 

likely already planted in the US than projected in March.

2) Winter wheat is 2-3 weeks early in development.  That means another 1 million or more acres will likely be double cropped to soybeans. 

3) Ideal planting conditions this spring likely mean an above average crop yield for corn and soybeans; USDA so far has only adjusted the corn yield up 2 bu/acre.  Soybeans could also be hiked 0.25 bu above trend.

4) Winter wheat and oat ratings are well above normal, indicating so far the US growing season has been above average for yield potential of all crops.

5) The drought in the HRW wheat and Delta is over this spring; rainfall has replenished soil moisture levels in much of OK, TX, and KS by May 1 this year.

6) As early as winter wheat was in 2012, virtually no freeze damage occurred during susceptible April.

Recently, a new problem has emerged that has the grip of attention of traders.  Wheat droughts in Russia and Ukraine have spiked wheat $1/bushel last week, in the biggest one week gain ever, percentage wise.  There is also concern about dry weather in KS recently which trimmed the record large yields back in that state (although many other winter wheat states still have record shattering yield potential). 

That spike higher has put wheat and corn into position to possibly break the recent downtrend in those two grains.  Chicago wheat rallied to new recent highs (although KC and Mpls didn't follow), and now even with a break this week it looks like it could be just a correction in an otherwise bull market?  Otherwise, if trends remain down (like all other commodities right now) then last week's spike looks really odd on charts.  

But, while corn and wheat look like they may be breaking downtrends, soybeans fell to new recent lows this week.  That is a sign of a bear market, and soybeans continue to lose ground relative to wheat and corn.  Already, soybean/corn price ratio has dropped back down to a near normal 2.4 ratio for 2012 crops, and that is downright ordinary.  It seems a foregone conclusion that another 3 million acres of soybeans were likely planted this spring vs. normal.  Bottom line: soybean trends remain down, but corn/wheat is trying to rally.  

Weather is still king during summer trading, and weather will remain so for the near term.  For now, though, we know that the winter wheat is basically near maturity in the heart of HRW wheat country.  We also know that little will affect yields from here on out, and currently Pro Ag yield models suggest a record shattering yield at 48.8 bu/acre (a good 1.2 bu/acre above recent USDA May estimates).  For corn and soybeans, the jury is still out but the crop was planted in ideal conditions (early seeded and in very good condition right now).  That means corn will reach pollination before the critical summer heat in August typically hits. That is indeed important for avoiding crop disasters.  

The only thing that could still derail this crop from its above average start is summer drought.  The last three weeks indicate a drought possibility, though until that break the market may not break significantly from current levels (and wheat/corn might even want to rally).  


The information contained, while not guaranteed as to accuracy or 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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