We started out Friday morning with sharp sell offs in gold and silver. Both precious metals are down over $25.00. This set the tone for weaker grain markets. Huge US soybean carryout estimates and forecasts for more favorable weather for planting could continue to provide heavy overhead resistance for the soybean market.

There have been unconfirmed rumors that China may issue import quotas for 1.0 million metric tonnes (mmt's) of corn. The persistent drought in the Southern Plains has stimulated concerns that the dry pattern has already extended into the Western Corn belt. Given the tightness in the US corn balance sheet, the trade is building in a larger risk premium into price for the possibility of a sub trend yield. The corn trade is confident of a large expansion in ethanol production and in improved US corn export prospects as China backs away from the export market. However the trade is much less certain of US corn yield prospects. Although The US corn crop is off to a good start with the above average planting pace, the trade will not have confidence that an above trend yield will be achieved until we are deeper into the growing season or until widespread precipitation continues to be received across the Western Corn belt, eliminating drought fears. A decline in yield to a below trend 145.0 bushels per acre could put corn into a bull market for two years.

The market continues to find support from fund buying on commodity inflation ideas. Big buying of CZ07 and CZ08 calls was noted late last week.