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The media hype that La Nina will create a short fall in grain production this fall is turning into hysteria. Nearly every ag news story that you read focuses on a potential drought, which is fueling bullish enthusiasm. In the past two weeks alone, the funds have increased their longs 650 MB to 725 MB. While there is room for them to add to their position, a huge disappointment will occur if inflammatory conditions fail to develop. In the meantime, the crop rating for corn improved three points to 75 percent in good-to-excellent condition, and is one point above last year. According to Ag Watch’s yield model, the national yield is on par with last year’s yield of 168.4 bpa. Export inspections last week topped the 40.0 MB mark again at 42.0 MB. Right now, the greatest threat seen to corn is the buildup of bullish exuberance for a drought developing this summer.
The bulls are in a frenzy and holding the pedal to the metal as soybean values have reached a level not seen in nearly two years. Hype surrounding the potential impact of La Nina on U.S. production and the crop short fall in South America continues to dominate news headlines. The funds remain engaged as they added 30 MB to their long position last week increasing it to 1.020 BB. This is short of the record set in May 2012 of 1.125 BB. In the meantime, commercial traders are standing pat with a short position of 1.375 BB. As I have mentioned in previous comments, this creates a fragile situation because when the commercials fulfill their needs and the party stops, past history shows values sinking dramatically. Meanwhile, planting is progressing at a fast clip and is 83 percent complete compared to the average of 77 percent. The first rating of the season shows 72 percent of the crop in good-to-excellent condition compared to 69 percent a year ago. Right now, the greatest dilemma facing the bulls is if the anticipated adverse conditions arising from La Nina fail to develop.
Wheat was supported this week from strength in corn and soybeans, nothing more. The fund short position stood unchanged last week at 590 MB. Sixty-two percent of the crop is rated in good-to-excellent condition, a decline of one point from the previous week. Harvest is just getting underway at 2 percent complete compared to 10 percent for the average. Export inspections offered no thrills at 14.3 MB. Even though wheat does not have a story to tell it will follow the direction of corn and soybeans.
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