CORN: 6 lower

REMARKS:
I am sitting here this morning thinking about the corn market and it seems to me as if this market has more twists and turns to it than a Hitchcock novel.  There are what I believe to be four good story lines right now that are probably the drivers in this market.  The problem is that they are not all driving the same direction and thus this market may be susceptible to some gut wrenching volatility from day to day or even second to second.  The stories that I see vying for the driver’s seat are as follows:

1. Red China, I can’t remember the last time that I heard the nation referred to as Red China but they are still practice a bastardized form of communism so for my own enjoyment if nothing else I decided to go with the Red China moniker this morning.  So, here is the deal with Red China, they have depleted their stocks of corn severely and now appear to be very serious about replenishing those stocks.  To replenish their stocks may require as much as 10 MMT of corn.  If all 10 MMT were purchased from the USA it could project the 2011/12 ending stocks as low as 735 which would be supportive to prices.

2. Acres.  There are still some folks that are in a state of disbelief over the USDA Planted Acres numbers.  As you know, the USDA is doing a re-survey of four states and there is a school of thought out there that the acres will end up being less than what the June report indicated.

3. Yield.  This is probably a bigger story than the acres right now.  Yesterday the crop condition report was somewhat of a surprise in that it raised the condition of the crop by 1% over the previous week to 69% good to excellent.  The five year average is 67.4% good to excellent so that may put some pressure on the market.  One fact that we can’t get away from is that the crop is late.  In fact, at this point last year the average plant height of corn in South Dakota was 35 inches while right now it is 22 inches.  It appears that in late or wet years as if the government has a tendency to overestimate the size of the crop.  One does not have to look any further back than last year when a 71% good to excellent rating in August had the USDA projecting a 165 bu/acre national average yield.  The truth of course was 152.8 bu/acre .  If you couple 10 MMT worth of exports to Red China with a 152.8 bu/acre national average yield and leave the rest of the numbers unchanged from what the USDA has you project a 2011/12 carry-out of a touch over 390 and that ladies and gentlemen would be bullish.  The flip side is that with the current crop rating the USDA will in all likelihood give us a significant national average yield to play with when the next round of crop production numbers come out.

4. Corn for feed.   There is some real confusion surrounding how much corn is actually being used for feed with some traders suggesting that we may see the USDA July 12 report indicate an annual feeding number in the area of 4865 rather than the 5150 of the June report.

Right now I suspect that these are the stories that the trade is going to focus on and if I had to bet I would say the most important story will be yield with the Chinese story number two.  Technically, two of my three indicators remain bearish.  I should also note that we need to go to $6.20 ½ in the December futures to fill the gap left on July 1.

SOYBEANS: 10 lower

REMARKS:
As things stand right now we are looking at a pretty tight 2011/12 carry-out in beans.  Of course a lot of stuff can happen to sway that one way or the other but as things stand right now we are probably staring a sub 150 number square in the face.  The soybean rating yesterday increased by 1% to 66% good to excellent.  Oddly enough that is exactly the rating we were at in August of last year when the USDA projected a 44 bu/acre national average yield.  As you will remember we ended up last year with a national average yield of 43.5 bu/acre.  USA exports have been pretty solid.  They are running up 4% from last year with the USDA projecting that we will end up 3% for the year when the smoke clears at the end of the year.  Something else to keep an eye on is the value of the Brazilian Real.  As you can see on the following chart it has been rising sharply and in the past that seems to have limited the amount of new land coming into production.  From a technical perspective two of my three indicators are currently bearish.

WHEAT: HRS 10 lower        HRW 14 lower

REMARKS:      
Not a lot of fresh news in the wheat pits.  We have the ongoing Russian problem with, as we noted yesterday, that nation offering wheat for sale at a price that is $40 MT less than what the French are willing to sell for.  I am hearing stories of disappointing yields coming out of Europe while stories of abysmal conditions in Canadian wheat country seem to be the norm rather than the exception.  Here in this nation the HRS crop is now rated as 70% good to excellent.  This is up 1% from last week but well behind the 83% good to excellent posted for this week a year ago.  HRW harvest continues to make progress with 56% of the crop now harvested.  We appear to have ample supplies of wheat and I look for the wheat market to probably take its cue from the other markets rather than trade exclusively on its own fundamentals.  Technically, two of my three indicators are bearish in both HRS and HRW.   

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