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As I have often commented, market action and reaction are often more about the perception than the reality of something. Do not take me wrong; I fully appreciate the rally we have witnessed overnight but find it almost humorous that it is being attributed to the decrease in crop ratings published yesterday. There is no question that people like reasons they can relate to or that at least deem rational and the very word “deteriorate” would imply that the crop is becoming smaller. I guess it just feels better to think that prices are moving because of a change in some underlying event than to say, technically we were oversold and due for a rally or even, shorts have little reason to hold positions after this break and have decided to cover part of their holdings.
Be that as it may, prices are higher this morning and crops rating were a smidge lower in the good/excellent categories on this week’s report, but considering the advanced stage of development this year, that could actually make sense. Generally, when corn and beans have reached the apex of the growing stage, and move into the final development stage, the need for water, etc., grows and seeing that is normally the time of year that rainfall begins to taper, so does the appearance of the crop. Add in the warm temperatures of July and August, and you can really get the impact. When you consider that corn silking is 26% ahead of normal, and beans setting pods are 15% ahead of the average pace, it would seem reasonable that a deterioration in crop conditions would be occurring ahead of schedule as well.
As I said though, I am certainly not complaining as once a rebound begins, it can shift technical indicators positive, and you can end up with a chain reaction. While I cannot say with absolute certainty that will be the case, it would appear we have all the ingredients in place for such a move. Both corn and beans are as oversold as we have been since fall of last year not to mention the fact that corn has reached to within 10% of what has been the low end of the 4-year trading range, and is sitting with a price-positive world balance sheet and beans are at the lowest level traded since the recession lows in 2008. By no means am I looking for a runaway advance at this time, but we could certainly be in line for a larger corrective pre-harvest bounce than some might suspect.
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