Corn prices are consolidating below their recent 6-month high following the sharp rally seen in early July. Bullish factors include (1) carryover support from wheat prices, which continued to skyrocket higher this week, (2) the drought in Russia and Europe, which will cut corn production in those areas, (3) continued strong ethanol production, which is absorbing about 35% of the corn crop, (4) continued bullishness about exports to China, and (5) the decline in the dollar index to a 3-month low. Bearish factors included (1) recent rain and cooler temperatures in the Midwest that should boost yields, (2) the weekly Crop Progress report that showed good-to-excellent crop conditions of 72%, unchanged from the previous week and above the 5-year average, and (3) quick development of the corn crop with corn silking at 84% of the crop as of July 25, 14 points ahead of the 5-year average of 70%.

Weekly Crop Progress report (week ended July 18):

72% of the crop is in good-to-excellent condition (unch w/w and +2 point y/y). Weekly Corn Exports (week ended July 22): 1,199 MT; 2009/10 (Sep-Aug) cumulative exports are up +9% y/y.

Fundamental Outlook-Consolidation-Corn prices are consolidating recent sharp gains following the bullish July 9 USDA reports, which lowered US and global production estimates and lowered US and global corn carry-over estimates. That added to the already-bullish factor of strong demand (China, ethanol) and a smaller Russian corn crop due to drought. Corn is gaining carry-over support from wheat, but there is overhead resistance from the likelihood that this summer's corn crop will still be a record and that global corn supply is still large.

Soybean prices are consolidating following the recent sharp rally that pushed prices up to a 7-month high. Soybean prices have seen carryover support from the sharp rally in wheat prices and continued talk about exports to China. The outlook for soybean exports looks strong with the cumulative US soybean exports up +18% y/y and the USDA's recent forecast that US soybean exports for the current year will reach 39.7 MT, up +17% from last year. However, soybean prices were capped by rain in the Midwest and cooler temperatures. The latest weekly USDA Crop Progress report was mildly bearish with the good to-excellent rating of 67% unchanged from the previous week and matching the best level seen in the past 5 years. The report also showed accelerated development of the crop with 35% of the crop setting pods, 4 percentage points ahead of the 5-year average of 31%.

Weekly Crop Progress (week ended July 18):

67% of the crop is in good-to-excellent condition (unch w/w and unch y/y). Weekly US soybean exports (week ended July 22): 178.6 MT; 2009/10 (Sep-Aug) cumulative exports are up +18% y/y.

Fundamental Outlook-Consolidation-Soybean prices are consolidating recent gains with weather determining near-term price action ahead of the all-important pod-filling stage in August. The big-picture remains bearish with the USDA forecasting (1) the second largest US crop in history this year (3.345 bln bu), (2) US 2010/11 carry-over a 4-yr high of 360 mln bushels, and (3) a 2.3% y/y rise in the global 2010/11 carry-over to a record high of 66.99 bln bushels.

Wheat prices continued to skyrocket higher and posted a new 14-month high. The main bullish factor was the forecast for continued hot temperatures above 100 degrees Fahrenheit in Russia and Kazakhstan, which will cause further damage to wheat crops. There was more speculation about the possibility of export restrictions in Russia and the Ukraine. The International Grain Council on Thursday cut its forecast for Russia's wheat harvest by 12% to 50 million tons from 57 million tons in June and cut its forecast for Kazakhstan's wheat crop by 18% to 13.5 million tons from 16.5 million tons in June. A French government agency forecast that French wheat production will be down 5.2% this year. Wheat prices were also supported by weakness in the dollar and continued short-covering and new technical buying.

Weekly Crop Progress (week ended July 18):

Winter wheat 76% harvested (-6 points below the 5-year average of 82%); Spring wheat 82% in good-to-excellent condition (-1 pt w/w and +9 pts y/y).

Weekly US wheat exports (week ended July 22):

451.304 MT; cumulative 2010/11 (June-May) all-wheat exports: +35% y/y.

Fundamental Outlook-Near-term Bullish -Wheat prices continue to gain on concerns that droughts in Russia and Australia may limit global supplies. However, the US wheat supply situation remains heavy with the USDA forecasting US 2010/11 carry-over at a 23-year high. Moreover, global 2010/11 wheat production is expected to fall only 1.1%, resulting in a 9-year high in the 2010/11 global carry-over and strong competition for US wheat exports.

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