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Tim Hannagan: USDA seen raising export projections

We started the week's reports with our weekly export inspection report. This report is important because it's a gauge of demand. We have two reports each week that the government informs us exactly how demand is going. Once the supply side of the market is known, then  demand will become the driving force weekly export inspection report comes every Monday at 10 A.M. Central Time. 

Wheat inspections were 25 million bushels  and that was up from last years 16m.b. bushels and our four-week average of 19m.b. Clearly that's a strong number and suggests that it could even get stronger. 

The spring wheat crop harvest is underway and as the harvest progresses over the next 30 days and finishes up we expect demand to be very aggressive. Corn inspections were 45M.B. up from a year ago of 37 and  and a very strong four-week average of 35M.B. This was the  second consecutive week over 40 m.b. Anything over 40  is considered very bullish for demand. What I liked about  the number this week was that it came after Friday's close the highest close of the year. 

So, traders were not concerned about the high price, they just needed corn. Soybean sales inspections were 7M.B. expected for near-term export. That was down from the week prior of 11M.B. and just under the four-week average of 9M.B. What we've seen the last two weeks is China backing away from what was a very aggressive export pace, as they know the harvest is just about underway. As the harvest begins here in September, they expect to have the cash availability for beans to be a much better value. 

Overall, export demand for wheat, corn and beans looks to maintain a record pace going into 2011. 

The next report was Monday at 3 PM central time after the close .Our crop condition report came out. Traders had expected to show a reduction in the quality of corn and beans from the week prior being very hot and very dry and they were surprised that it came out unchanged. Corn condition was put at 70% of the crop in good/excellent condition, unchanged from the week prior, and one percentage point above a year ago. This is what has traders confused, as last year's pre-harvest weather was the coolest and wettest on record. This year, we had over 65% of the Midwest  much warmer. Some of the Corn Belt states recorded hottest temperatures on record and very dry. 

How can the condition of the crop be equal? Traders are saying to themselves we will ignore the condition for now and just focus on the harvest that's getting underway and that'll tell the whole story. Harvest is beginning in the southern Delta and in southern and central Illinois and Indiana. Early reports are that the yields are coming in lower than expected but it's still too early to have the government respond. They (USDA) don't have enough harvest at this point to get a feel for what the crop condition really should be. 

Soybean condition came in at 64% good to excellent condition unchanged from the week prior, lowest of the year and  under last years 69% good to excellent condition. So even though it was unchanged on the week traders had expected to be even lower by two or three percentage points . The reason for that is the sudden death disease that is showing up in  Iowa, Northern Illinois and Indiana. This was expected to come in and have the government lower the quality levels, as a result. But, keep in mind we haven't started harvest in northern Illinois Indiana or Iowa yet, so we haven't gotten the worst of the soybeans.  I'm sure these conditions will come down from here. 

Spring wheat is now 69% harvested and that's the end of that story. What traders will be looking for next on the wheat is the planting of this year's winter wheat crop. The last five weeks we have seen corn soybeans and wheat finish at the high prices for the week or at least near the highs, followed by higher Sunday night opening. Reason being is there's no crop reports out over the weekend. So, the Sunday opening trade is always dictated by the charts from Friday's close. We also had five consecutive higher Monday openings followed by selling off the Monday highs and then lower trade on Tuesday. We saw that again this week. Monday, we saw a sharply lower prices for beans and wheat on the close. 

The point is, the market is on this pattern of finding its lows early in the week on Tuesday or Wednesday followed by a late week rally, higher openings to start the week and then profit-taking again into Tuesday or Wednesday. This pattern might change a little bit as there was a little stronger break today because this was the month-end. Were facing a three day weekend where the market is closed due to the Labor Day holiday on Monday.  Markets re- open on Tuesday. 

Traders  might be reluctant to add too many positions long  where they can't get in and out of their trades for three days. They may wait until they return on Tuesday. That in mind, next Tuesday after we open there is only going to be three days for the funds and traders to get position for the Friday, September 10 report as it comes out prior to Friday's opening. No one's going to want to be short going into that report and speculators will want to be long.  The market trades fear before fact. The fear is the  report will sharply increase export projections and  possibly sharply lower our ending stocks on this report. The fear comes from several fronts.

Weekly export sales reports have shown a very  aggressive record pace for corn and soybeans the last month and now you're starting to see the same on wheat. So, demand is clearly stronger than what the government had been talking about several months prior. Additionally, we had crop problems in the European Community , severe in Russia and the Ukraine. The wheat plantings being down in Canada problems now in northern Australia, lends to  a lot of thinking that if the wheat crop suffered then everything from peas to soybeans and corn certainly suffered in these countries as well and this may be why demand is picking up and looks to continue. So, there is a theory that the government will raise projected exports and lower our ending stocks. So what we're looking for now is is a low this week that gives a buy lead ahead of the report.  December corn has support down at the 4.26 to 4.28 area. 

Should corn get down there any day this week, I would look at being a buyer or I would buy on a close over 4.45. That carries a lot of risk, I'd much rather be a buyer off support ahead of Tuesday's opening. 

Soybeans basis November has support Wednesday at 1004 Thursday at 1006. Anything down to that support line should be bought or a closing price over 1032 this week. You want to try and find a point to get long ahead of this report in hopes we can at least get a 'dead cat bounce' going into Friday and have a cushion before the market opens on Tuesday. Conservative traders may want to wait untill Tuesday before they do anything.  December wheat has support at 680 and could take it out making next support 6.64. or a closing price over 714. 

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