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Everyone has been bullish corn because of rising energy prices and increased ethanol production. However, this is just one side of the demand equation. The other side is cattle placed on feed are down 3 percent from a year ago, and exports are struggling. These must not be overlooked as they could be bumps down the road. Looking at exports, inspections last week were mundane at 24.3 MB. They must average 51.9 MB each week if we are to reach USDA’s projection of 2.5 MB. This may be a formidable task to achieve and might show up in next week’s crop report. In other developments, harvest has turned the corner and is in the final stretch at 74 percent complete compared to 66 percent for the average.
For the past few weeks, soybeans have mostly been a spectator standing on the sidelines watching the trend higher in corn and wheat. This is because of comfortable domestic stocks and a record crop that is forecast in Brazil. The factor underpinning the market is strong exports. Last week, inspections were the highest of the season at 83.4 MB with China taking 52.6 MB, or 63 percent of shipments. However, that may soon end if we follow the norm. Usually, soybean exports peak in November if there are no production issues in South America with China turning their appetite to Brazil to meet their needs. So far, they have favorable growing conditions with no threats on the horizon. In other developments, harvest is starting to wind down at 87 percent done versus the average of 86 percent. After the crop is harvested, the focus will be on whether soybeans get the lion’s share of planted acres next spring.
The strength in wheat the past several weeks has been related to inflationary expectations. However, I have a different opinion. Since May, the index funds, or institutional investors, have been liquidating their long positions and have reduced them by 25 percent. These are the investors that take a stand on their outlook for the economy and inflation. Meanwhile, the trend following funds, who have a shorter-term horizon, have been covering their shorts since July. In my judgement, this has mostly been the primary reason behind the strength in wheat in addition to a smaller crop in Canada. In other developments, export inspections last week were a marketing year low of 4.2 MB. Since August, the pace of shipments has fallen 60 percent. We need strong exports to maintain current price levels. Looking at winter wheat planting, it is wrapping up at 87 percent complete with 45 percent of the crop rated in good-to-excellent condition compared to 43 percent a year ago.
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