Corn, soybeans, and wheat closed higher on Tuesday from the drop in crop ratings and the slightly drier European weather model. Corn and soybean ratings were down 2% this week which was at the low end of estimates which started the overnight rally. The US Dollar index was sharply lower today which was also supportive for commodities.
There are still plenty of strong opinions from both the bulls and the bears regarding production and demand, a lot of that depends on the location of the onion. The Eastern Corn Belt is looking at above trendline yields while many believe the western belt is developing enough problems to be below trendline. The next few days are expected to be hot and dry but the forecast is still calling for favorable rains to follow after the ridge breaks up. Any changes to the forecast will still be the main driving factor for price action but if we progress into August without significant problems the market could continue to work lower. We are keeping an open mind about production but we have to remember that corn is still rated 66% good-excellent and soybeans are 65% good-excellent. There are areas that are worse than others but every year we can expect to get those sore thumbs somewhere; it is the average that counts. To that point, when we are coming off of three bad growing years in a row we can see how the market would tend to lean toward the side of caution and be rather conservative about yield estimates. Meanwhile the USDA has demand pegged very high for having corn above $5.00 and soybeans above $12.50. We still have that record South American soybean crop to help support the world’s needs. The USDA is expecting China to import 69 million metric tons of soybeans next year when we are hardly able to scratch 59 million this year. Corn feed demand is pegged sharply higher than last year even though those fundamentals don’t add up at these prices. When we consider all of these moving parts we can see how the market may be adding too much risk premium currently and prices are at risk of dropping into harvest when we get some actual production results and more weight is put on demand. For now we want to stay well hedged through these large weather swings. If you would like upside protection on your corn hedges "just-in-case" look at the October corn calls to take us into harvest.
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