The week started with the weekly crop-progress report, a gauge of supply. 

Corn condition came in at 74% good to excellent condition unchanged on the week. Harvest was pegged at 46% complete.  The ten-year average is 64%.  Early indications suggest farmers will store three-quarters of this year’s crop. 

Soybean condition came in at 74% good to excellent condition, up one percentage point on the week.  Harvest jumped to 70% complete with the 10-year average at 76%.  The aggressive harvest pace is necessary to meet the demand. 

The weekly export sales report that came out Thursday presents the demand side of the market. 

Corn sales last week were 1.031 million metric tons, down 46% from the week prior.  Japan was in for 167 thousand.  Normally, at harvest time, Japan is in for 300 to 400 thousand.   Five-hundred-seventy-six-thousand metric tonswas sold to an unknown destination, most likely China.  Should it become clear that China is buying corn, a floor on the market is in with gains certain. 

Soybean sales were 2.166 million metric tons with China in for 1.701 of the total.  I look for China to have record U.S. soybean purchases for the fifth consecutive year, regardless of crop sizes out of South America.  With meteorologists calling for a colder winter across the plains this season, we should expect funds to be aggressive buyers in the long soy-meal, short soy-oil spreads.  Both markets have had reasonable seasonal corrections, which suggests taking a position soon.  Feeder Cattle producers look to be aggressive buyers of soy meal to add to the feed ration in hopes of keeping cattle weights up during a hard winter. 

December soy meal rallied to a price a few ticks under $400/ton before retreating earlier this week. The rally in soy meal is a mixture of squeezed cash buying and short covering.   The delayed eastern Midwest harvest (due to wet-weather conditions) has slowed the arrival of full US crush capacity, even with margins at historically high levels and US soybean supplies in abundance.  

Additionally, rail cars loaded and shipped with meal are slow to arrive at end users in the southeast US because of track congestion. This has caused a panic of sorts. Users are trucking meal to supplant supplies until the rail cars arrive. The double booking of rail and truck meal has added to the nearby tightness.  I caution that once this issue is resolved, a rather quick collapse in price is likely in my view. Note that open chart gaps in spot meal have been partially filled.

It is my contention that an opportunity exists to potentially catch a move lower in December Soy meal before we look for opportunities to go long soy meal and short soy oil.  I propose buying the Dec 340.00 soy meal put for 3.5 points or in cash value $350.00. I posit that this recent rally will lose steam and recent longs will cover next week in front of the all important November 10th crop report. The risk on the trade is the price paid for the option plus all commission and fees.

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup.

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