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Bullish energy has been building the past several weeks in anticipation that heat and dry weather during June and July will adversely affect corn yields. Last week alone, the funds added 375 MB to their long position increasing it to 1.1 BB. This is their largest position since October 2012. In the meantime, the crop ratings improved 2 points last week to 75 percent in good-to-excellent condition. This is 5 percent better than the 10-year average and poses a speed bump for the bulls. According to Ag Watch’s yield model, this equates to a national yield of 169.9 bpa compared to 168.4 bpa a year ago. Although heat remains in the forecast, the bulls need to see actual deterioration in current conditions to keep the advance going. Looking at exports, inspections last week were a marketing year high of 66.8 MB. We have to ship 54.3 MB each week to reach USDA’s projection of 1.825 BB.
Traders that are bullish soybeans face some hurdles. One is the ratings were up 2 points last week to 74 percent of the crop in good-to-excellent condition. This is 7 percent above the 10-year average. While the ratings could decline at the drop of a hat, the crop is off to a good start for now. The other issue is that traders have been factoring in lower production in South America since March. This, coupled with the anticipation for adverse weather in the Midwest, has led to the funds building a long position of 1.055 BB as of last week. The record is 1.125 BB set in May 2012. Another factor is that commercial traders are short 1.450 BB, their largest position since September 2012. Keep in mind that commercial traders are hedgers. In the past, when the funds and commercials have reached opposite extremes of this magnitude, a sharp sell-off has unfolded. In other developments, export inspections were uninspiring at 5.0 BB.
Wheat harvest is getting underway, but off to a slow start at 11 percent complete compared to 18 percent for the average. Yields I am hearing are impressive. Export inspections were routine at 13.3 MB. Last week, the funds lightened their short position by 175 MB reducing it to 415 MB. For the moment, traders seem to have little interest in wheat and are focusing mostly on developments in corn and soybeans.
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