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Sentiment is mostly neutral toward corn. Lower production estimates in Brazil and weakness in the dollar have increased expectations that they will import U.S. corn. Last week, the funds bought 560 MB flipping from a short position to being long 320 MB. In the years of tracking their activity going back to 2002, this is their most aggressive 180 degree turn that I have seen. Considering the current fundamentals, it makes me suspicious as to whether the U.S. and European central banks are intervening in commodities to inflate their economies. After all, zero percent interest rates and QE have not worked, and this is the only tool they have left. Meanwhile, export inspections last week were a marketing year high at 45.6 MB, the fifth consecutive week that they have been above 40 MB. Planting is progressing without a glitch at 45 percent complete, which is on par with a year ago and compares to the average of 30 percent.
For the past several weeks, soybeans have reigned as the crown jewel in the grains. Excessive wet conditions in Argentina this season has resulted in analysts lowering their production estimate 1.0-4.5 million tons. More cuts may be forthcoming. Meanwhile, an abundant crop in South America still remains on tap. The funds were aggressive last week as they increased their long position 135 MB to 730 MB. This is their largest position since April 2014. The long position of the index funds fell slightly to 705 MB. However, the combined long position of the trend following and the index funds now totals 1.435 BB, and implies that they are becoming overextended. Looking at exports, inspections last week were the second lowest of the marketing year at 5.5 MB. Meanwhile, they are still on track to reach USDA’s target of 1.705 BB. Over the past five weeks, China has generally been a no show with most of their business going to South America. Planting is getting underway at 8 percent complete compared to 10 percent a year ago and 6 percent for the average. Right now, the greatest threat seen to soybeans is the bullish exuberance of speculators. Unless there becomes an actual supply shortage, when the bubble bursts, everyone will get wet!
The annual crop tour in Kansas will probably create a headwind in wheat as it shows better than anticipated yield potential. Last week, the ratings improved 2 points to 61 percent of the crop in good-to-excellent condition. This compares to 43 percent a year ago and the 10 year average of 46 percent. Export inspections were mediocre at 13.0 MB and must average 19.7 MB each week to reach USDA’s projection of 775 MB. Currently, we are on track to ship 745 MB. Because of the strength in soybeans, the funds lightened their short position 135 MB to 540 MB. Right now, fund short covering is about the only supportive factor for wheat.
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