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Markets march on with elections over

Our election is over, and while the Republicans can celebrate their wins in the House and gains in the Senate, it might also be true that now that no one party controls the House, Senate, and Presidency that there will be more gridlock in Washington.  Gridlock might not be all bad, though, as generally the US economy is stronger the less government seems to do. Since the ag markets are all strong coming into the fall of 2010, perhaps the best thing for ag markets is gridlock in Washington, as that means less will be done.  Or as another person had put it so well in talking about Washington, when all is said and done - a whole lot more was said than done!

That might be good for markets, as the stock market, ag markets, and commodity markets in general have had a strong run in 2010, with cotton, gold, and silver at or near all time highs while grains such as corn, soybeans, and wheat are making runs at all-time highs set in 2008.  This is indeed a good year for agriculture, with mostly good crops in the US (a record large wheat and soybean crop yield, a slightly below 'trend' corn yield) that combined with high prices will leave most producers looking at a very profitable year indeed. 

The good news is that prices may not be done going higher.  As we stated last week, the bull market of 2010 may not yet be over quite yet!  We have another report left on Nov. 9 which will update again the corn and soybean yields for US crops, and with over 90% of both crops already harvested these should now be pretty solid numbers for US final yields. Even so, USDA will have one more chance to get it right in the final Jan. report, and so far recent private updates have shown a propensity to cut yields for both corn and soybeans from the October crop estimates.  Its likely that will tighten up further the ending stocks estimate of grains in the November report, and that could give a boost to ag prices as we near the end of the year.

Recent exports of wheat and corn have slowed with the new higher price levels, with corn especially slowing due to the much higher price level after the October report.  Its unlikely we will see us reach the current projected USDA corn export figure based on recent weeks shipments and sales, so their could be a cut in US export projections for corn.  Wheat also is seeing slower export shipments and sales for wheat, and that could cut into what now appears to be a pretty optimistic export projection by USDA.  That is in spite of some severe cuts in some other major exporters, especially Russia which has announced an export ban all the way into July of next year.  Soybean exports, though, continue to astound the market, with some extremely strong export numbers the past month on both sales and shipments.  China continues to buy at a torrid pace, and that seems likely to continue into the SAM harvest of their new crop soybeans next spring. 

Weather has improved for the most part in the world, with FSU weather continuing to soak up more soils in the northern FSU countries recently, allowing improved germination and planting of winter wheat there, including Russia, following their torrid drought of 2010.  South America (SAM) also is seeing an increase in rainfall in previously dry northern areas of Brazil, and the steady rainfall is providing a good seedbed for planting of soybean crops there.  While weather has improved in the rest of the world, US winter wheat crops are suffering somewhat under dry conditions in this country (the same dry conditions responsible for our rapid harvest of corn and soybeans - a harvest that has been under ideal weather conditions for harvest - a warm and dry October).  While the weather has been ideal for harvesting of corn (at mostly dry levels), it may become an issue in winter wheat if topsoils continue to dry out. 

For now, the bull market in grains is alive and well, and could continue if we get another shot in the arm from the USDA Nov. report.  How long grains can hold these lofty price levels might depend on how quickly demand is rationed to allow security of stocks into next year.  In wheat and corn, we might be approaching price levels where that job of rationing might be taking place.  But in soybeans, it still is a question mark.  But then again, US soybean yields may not be all that poor - perhaps we can handle the export pace to date???

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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