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Corn futures consolidated this week following last week’s flurry stemming from the steep decline in the dollar. The drop in the greenback prompted the funds to shed 55 MB of their short position reducing it to 695 MB. While there may be additional short covering, keep in mind that the fundamentals for corn remain bearish against the backdrop of sluggish exports, favorable weather in South America, and Argentina eliminating their export tax. The elimination of their tax will spark increased producer sales. Meanwhile, export inspections last week were dreary at 19.3 MB. Although the USDA lowered their export projection 50 MB to 1.750 in the December Supply-Demand Report, we have to ship 38.5 MB each week to reach the new target. The 50 MB increase in ending stocks from a year ago to 1.785 BB does not give the bulls a lot to cheer about.
Soybeans traded to a seven week high early this week on fund short covering, but have since cooled off. Because of the decline in the dollar last week, the funds bailed on 35 MB of their short position reducing it to 350 MB. Meanwhile, weather in South America is favorable for the developing crop, while exports remain brisk. Inspections last week were 63.2 MB with China taking 41.3 MB or 65 percent of shipments. However, exports peaked in early November with the pace having since fallen 22 percent. In the meantime, the USDA sees no reason to revise their export estimate, as they left it unchanged at 1.715 BB in the December Supply-Demand Report. They also left ending stocks unrevised at 465 MB. In the weeks ahead, weather in South America and exports will garner traders attention.
Wheat began a rebound last week that has continued into this week. Be aware that it is technical as the fundamentals are bearish. Exports remain lethargic with inspections last week only 8.2 MB, the third smallest shipment of the season. Argentina’s elimination of their export tax will only exacerbate the situation. The USDA had room to lower their export estimate in the December Supply-Demand Report, but decided to leave it unchanged at 800 MB, along with ending stocks at 911 MB. In the meantime, the funds are extremely bearish as they recently increased their short position 120 MB to 540 MB, their largest position since May. Be aware that the size of their position alone could induce a short covering rally.
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