Grains rebounded sharply today from Friday's limit down move. December corn finished up 21 ½ cents, January soybeans finished up 17 ½ cents, and December wheat finished up 3 ½.
Overnight the corn market gapped higher opening at $5.41 ¾. Funds were heavy sellers on Friday, but flipped and were once again heavy buyers today. The market was unable to fill the previous gap in Dec corn set at $5.28 ¼. Today's general commodity rally was impressive considering the US dollar was sharply higher.
Export inspections this morning were below last week's numbers for corn, wheat, and soybeans but were not a major factor. Since we had a limit move Friday, limits were expanded to 45 cents allowing corn to move up and over 30 cents higher at one point in the day. Tomorrow we will go back to standard limits in the grains.
There were rumors that China is entering an agreement with Argentina to import between 4 and 8 million MT's of corn. From what we know and have heard this process should take up to 6 months to a year to complete, since currently Argentina is not approved by China as an exporter of corn. Maybe they are trying to speed the process along but as it stands right now we think it could be over-assumptions by the market. Another reason why the market was higher was the lack of a Chinese rate hike over the weekend.
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Pre-market sale announcements were strong this morning. The USDA announced exports for almost every product, and this is exactly the type of export activity the market wanted to see for a demand fueled market. The market broke last week and immediately followed up with sales this week. If the market didn't see this type of pricing on a big break it may assume that they already have much of their needs priced.
For new crop unless there is an unforeseen demand shift it could be hard to break the back months between now and the March Planting Intentions report. Until more is known about the S. American crop, 2011 corn will likely have a hard time staying below $5 and 2011 soybeans will have a hard time staying below $11. There really isn't much room for error in the S. American production, so the market will be edgy on any major weather concerns.
The Commitment of Traders report was delayed until today due to Veteran's Day last week. The report shows the large speculator decreased net long corn positions by 11,556 contracts using futures/options. They actually increased their long soybean positions by 3001 contracts. Traders have also been anticipating today's Winter Wheat Crop Condition report. The good to excellent category jumped one percent to 46% but is still quite lower than the 10 year average of 58% good to excellent.
The lower end of the December corn gap is still seen as support at $5.28 ¼. We recommend remaining with our current hedge recommendations. Please call your broker if you have any questions.