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Grain and soy markets have a slightly different complexion this morning compared to the first day of trading last week. At that time the doom and gloom was nearly overwhelming particularly in the corn and wheat markets as we gapped lower and pressed into new lows for the year. This morning though there a broad smiles stretching across the face of the bulls and actually in both corn in beans, prices have gapped higher. While I am not going to claim that we can necessarily hold this strength but note that in the case of the corn market, at this point we have what is technically referred to as an island reversal and if that can hold through midweek, the market could be telling the outlook ahead is beginning to look much brighter once again. It would appear that the prospect for 100-degree temperatures reaching as far north as the Dakotas during pollination is making the bear feel just a bit squeamish.
While little spoken of recently, one of the underlying factors in the corn market that could be lending support is the topic of Chinese corn inventory. As we know, the Chinese government has changed course this year in allowing world prices to dictate sales of government owned stocks, which in and of itself should be a possible tipoff that they are recognizing the stock pile program is rife with issues. According to the USDA, China is sitting on 109 MMT of corn, which is more than half of the world inventory (205MMT) at this time but the major question is just how much of it is fit for livestock and/or human consumption. Conservative estimates suggest that at least 20% of this inventory at best will be suitable for industrial processing and that could be an extremely conservative estimate. Note that already in April and May, China has imported more than 1 MMT of corn each month, which sets a new record. With a livestock industry that is on the rebound, one has to imagine, demand for good quality corn and other feedstuffs in that nation will continue to expand.
Of course this is report week as the USDA will release the July supply/demand estimates tomorrow. For the past several months I have commented that it would seem unlikely that the government would offer up any major surprises and have needed to eat those words each time so from now on, I am going to anticipate they will tell us something shocking each month. It would just be nice if we knew in what fashion that will come. Regardless, average trade estimates for tomorrow are as follows; Corn production of 14.525 billion using an unchanged yield of 168 bpa. The average estimate for 2015/16 corn ending stocks is 1.805 billion and then 2.205 for the 2016/17 crop year. In beans we have an average production number of 3.867 billion with a yield of 46.7, which is also unchanged from the prior. Expected 2015/16 ending stocks are pegged at 352 million with 2016/17 expected to be 287 million. All wheat production is projected to come in at 2.159 billion with expected ending stocks for 2016/17 of 1.107 billion. Possibly as interesting as anything in the report will be the world and especially the South American numbers. The current estimate for Argentine corn and beans are 27 MMT and 56.5 MMT respectively and for Brazil, 77.5 MMT for corn and 97 MMT for beans.
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