The one major positive is that inflation really isn’t a factor in today’s economy.  Yes, it very well could be down the road, but not now.  The only real inflation that may exist is from fund buying activity that purchases commodities as a hedge against the fear mongering over perceived inflation coming from record government liquidity in the U.S. economy.  This caused the dollar to rally the past couple weeks and thus put pressure on commodity prices.  Now, it appears that commodities may have a little bit of upside in them as the dollar is now overbought and may move down again.  This will be supportive to commodities.  But, I’m not thinking much upside exists for commodities, outside of a simple technical correction.  

Soybeans pulled back to their 50-day moving average, but stayed above it, while corn has actually fallen below its 50-day moving average.  Wheat keeps flirting with moving above and below its 50-day moving average.  The beans pulled back hard on Friday due to private crop acreage estimates indicating a possible 3 billion bushel crop.  However, if there is grain commodity that could use a large crop, it is soybeans due to the dwindling world supplies.  Remember, soybeans are only grown in three primary areas of the world:  South America, China and the United States.  China consumes all they grow and are the largest importers of soybeans in the world.  So, it is down to South America and the United States for supplying soybeans to the world.  According to WASDE, South America’s crop grew about 25% from last year’s crop.  The coming U.S. soybean crop is projected at an 8 percent increase over last year’s crop.  Days of supply, for soybeans, on the world table were 69 last year and at a projected 80 days for the coming year.  Yes, soybean supplies are extremely tight domestically, but increasing from a very tight 13 days of supplies at the end of the current marketing year to nearly 25 days of supplies at the end of the next marketing year.  Thus, the reason for taming down some of the bullish comments expressed about soybeans the past few months.  

Corn, well the WASDE tables indicate a tighter supply when comparing days of supply.  At the end of this marketing year, there is a projected 48 days of corn supply left over compared to the end of the next marketing year with 32 days of corn supply.  However, exports for this marketing year don’t appear to be met.  Currently, USDA has them estimated at 1.75 billion bushels and we have accumulated 1.241 billion bushels of exports year-to-date.  We need to export almost 44 million bushels a week to meet current USDA projections.  Last week’s corn exports were just over 32 million bushels with the previous week’s at 24.5 million bushels.  It seems likely that when USDA adjusts exports for this marketing year, these extra bushels will show up in ending stocks and thus beginning stocks for the next marketing year.  This should raise the days of supply to a level that is more equal to the current marketing year’s figure of 48 days.  With all the trouble in the economy and flex-fuel vehicle sales slumping, I don’t think there is room to increase demand for ethanol.  This all sounds bearish to me.

Wheat doesn’t see much change in the domestic days of supply figure from the last marketing year to the next marketing year.  However, the European Union appears to be projecting a drop in wheat production of about 10 percent; and this on top of a drop in U.S. wheat production of about 20 percent.  Both locations are major world wheat exporters; and this data would seem very bullish.  But, the major world wheat importers are projected to see about a 5 percent increase in wheat production; thus offsetting some of the bullishness one might construe from the major world wheat export side of the WASDA table.  

I am not long-term bearish the grains.  How can one be long-term bearish when we may be on the doorstep, relative speaking, of the next major world economic expansionary phase.  Only this time around, the tally of lesser-developed countries is smaller.  This means more mouths to feed and some of those mouths are from countries that have more abilities to trade.  Excluding a technical correction that may first occur in the grain markets; I am short-term bearish the grains down to where the general 30-yr. average highs are for the grains.  I don’t think these grain prices will move sustainably below that level going forward.

The fat cattle market is still and will continue to be held hostage by this economy.  The live cattle market did trade up to its 50-day moving average and stop.  Friday’s cattle on feed report seems pretty neutral to slightly friendly; until you look at the breakout information regarding weight placement groups of calves.  Placement of heavy weight calves fell some 25 percent, this would normally be pretty bullish.  However, the spread between August and October Live Cattle futures are already at $5.50, October over August.  So, some of this bullishness may already be priced in and may not see as much of a bullish action as first thought.  As long as the U.S. economy is experiencing reduced consumer spending, weak retail sales, weak job market; consumer optimism will be at a minimum; and thus the consumer’s propensity to go out and spend more for beef will be significantly reduced.  On top of all this, the cheap hog prices and the dairy herd liquidation will be adding competing meat choices to this market and at substantially discounted prices relative to beef.