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One of the first lessons learned in becoming a successful trader, or money manager, is to not get caught with your pants down in an Artic windstorm! Currently, everyone is bullish corn with their focus on China, weather in South America, and Argentina curbing exports through February. What is being overlooked is the dollar is likely in its final descent that will be followed by a substantial recovery. Currently, export sales are running above their 5-year average. However, shipments are another story. Last week, inspections were 39.1 MB and below the average of 60.2 MB that must be shipped each week to achieve USDA’s target of 2.650. While the pace has improved recently, it still lags. If the dollar recovers, it poses a problem for the bulls. Currently, the funds are sporting a near record long position of 1.490 BB. In addition, the index funds are long 2.0 BB, their largest position since November 2014. Long story short–large speculators are already heavily committed to the bull camp.
Every publication that you read is bullish soybeans. Bears are nowhere to be found. Stocks-to-usage are forecast to be the second lowest on record. After a few weeks of lightening long positions, the funds have recently increased them to 895 MB. While this is not near the record, it is a hefty position. Dryness has been a problem in South America and production is expected to decline. There are a lot of “what if” scenarios circulating with many analysts presenting worst case situations. This usually happens when everyone is on board the wagon. While weather may worsen in Brazil and Argentina, widespread showers have been received recently. In the meantime, cracks are developing in exports. After a strong report a couple of weeks ago, inspections last week were 53.1 MB. While it is far from being shabby, it is the lowest number seen since late September. Looking at the broad picture, overall shipments have fallen 8.7 percent since mid-November. As mentioned in previous comments, November is when they generally peak. Meanwhile, shipments to China have declined 22.0 percent. Bottom line—could this upset the apple cart for the bulls?
Wheat rebounded this week in an effort to catch up with the rally in corn and soybeans. Otherwise, it does not have much of a story. Recent showers in the Plains offers resistance, while export quotas imposed by Russia is supportive. In other developments, export inspections last week were 11.1 MB and must average 20.6 MB on a weekly basis to reach USDA’s projection of 985 MB. Since early December, the export pace has fallen 15.3 percent.
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