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Corn was on a rampage for three weeks as traders were dialing in a worst-case yield scenario because of hot, dry conditions in the upper Midwest. However, that appears to have ended with this week’s sharp break. If it were not for the funds bailing out of an enormous short position, we would not have seen a gain of 11.5 percent beginning late June. Last week alone, they unloaded 335 MB of their shorts reducing them to 415 MB. Meanwhile, the crop rating declined three points last week to 65 percent in good-to-excellent condition and is below the ten-year average of 67 percent. According to Ag Watch’s yield model, the national yield is 164.8 bpa compared to USDA’s current estimate of 170.7 bpa. Right now, achieving a trendline yield is questionable. Looking at exports, inspections were anemic at 39.7 MB.
Traders were apparently expecting a disaster in soybean production as the market skyrocketed 15.4 percent in just over two weeks. Like corn, it appears to be over based upon this week’s sell-off. The reason behind the strong rally early this month was that the funds were sporting a record short position at the end of June and covered with a vengeance. Last week alone, they dumped 215 MB of their shorts reducing them to 520 MB. Keep in mind that while the upper Midwest has some issues, weather markets can end abruptly without warning leaving the bulls in a quandary. This week was a classic example. Meanwhile, the crop rating fell two points last week to 62 percent in good-to-excellent condition. This is slightly below the ten-year average of 63 percent. According to Ag Watch’s yield model, the national yield is 49.6 bpa. Compared to USDA’s estimate of 48.0 bpa. In other developments, export inspections last week were routine at 17.4 MB.
The decline in spring wheat conditions has apparently run its course in supporting winter wheat. Last week, the rating for spring wheat fell two points to a dismal 35 percent of the crop rated in good-to-excellent condition. The deterioration of the spring crop was the catalyst prompting the funds to liquidate short positions starting a couple of weeks ago. Last week, they shed 125 MB reducing their shorts to 190 MB. However, the short covering rally appears to be over. Looking at winter wheat harvest, it is progressing at a normal clip and is 67 percent complete compared to the average of 65 percent. Export inspections last week were routine at 19.6 MB.
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