Corn down the limit

I thought it would happen yesterday but the market gave me a gift to trade around my short position.

Wheat and Soybeans down big as well and closed near the lows

"Where the rubber meets the road"

Corn, Wheat, and Soybeans are down 4.5%, 3.5%, and 1.8% as I am writing this post.  

The full supply report from the USDA (21 pages) is linked below

http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-09-30-2010.pdf

from the executive summary

Corn supply up 2% compared to September 2009
All Wheat supply up 11% compared to September 2009
Soybean supply up 9% compared to September 2009

Always hard to call a top (or a bottom)

I am by no means a 'grizzled' veteran of the grain markets but each year there are weather 'problems'.  This year some of those problems did turn out to be real.  However, the weather problems in wheat for instance took out world supply of 4% (please see previous posts for more detail). 

Now that harvest season is upon the US, the harvest will help take any further concerns of weather 'problems' (at least in the US) out of the equation.  Harvest season has gotten off to quite a strong start.  According to the USDA, Corn harvested is at 27% vs the 5 year average of 15%.  For Soybeans, the harvested rate is at 17% vs the 5 year average of 13%. 

On Thursday, the USDA quarterly supply report will be released.  The quarterly report does not give demand estimates, only in depth coverage of current supply.  The current consensus is that it will be more bearish than bullish at these high price levels.  The other big report is the October World Agricultural Supply and Demand Estimates, which will be released on October 8th.

Buying pressure exhausted today in the grains?

I have been completely wrong on the grain markets this year.

Since Wheat has been leading the grain markets higher, it is important to understand the current supply situation. Weather problems, first in Canada, and then in Russia/Ukraine (Black Sea Wheat) have decreased wheat supply by approximately 4% worldwide.  At the time, the wheat market pushed above 850 on the concern that farmers of Black Sea Wheat would not be able to plant most of their crop for the following year.  Those concerns have since dissipated with normal weather, causing the price to fall back towards 700.  Currently, there are whispers of freeze issues in parts of China.  With all of these problems, the end game is that wheat supplies are still quite ample.  Going into this year, wheat carryover stocks were the highest in 10 years.  

Turning our attention to Soybeans, there is very little in the way of substitution between Wheat and Soybeans.  On the demand side, the Canola crop in Canada was damaged causing more demand for Soybean Oil.  In my opinion, most of the price increase is related to Wheat.

Price action today in Soybeans looked like buying pressure has finally been exhausted.  I am a big believer in psychological round numbers and Soybeans were unable to break 1100 in the front month (November) contract.  Harvest season will start in earnest for both Corn and Soybeans shortly.  US farmers will be selling their harvests in earnest. 

The trade today is to short Soybeans and use a stop above 1105 (to protect from a stop run)

The next trade is if Corn can close below 500 (current basis 508.50). I think once that occurs, you can get short the Corn market as well.