The following market analysis is for the week ending May 14.

CORN - The corn market staged an impressive mid-week rally this week based on trade talk that China was once again in the U.S. corn market, before giving back those gains - and more - in classic "buy the rumor, sell the fact" fashion. The U.S. Department of Agriculture release of the updated 2009-10 balance sheet on May 11 which included the first official look at the 2010-11 supply-demand table lent additional volatility. 

Before moving to the breakdown of the USDA report, we'll address the China issue. It was rumored early in the week that China was buying old crop U.S. corn. The U.S. Grains Council stated they believed that China had purchased up to 15 cargoes of corn. Up until that point the only confirmed sales to China were the 115,000 metric tons that were reported a couple of weeks ago. The weekly export sales report didn't list any new purchases by China, and sales were under estimates.

Weekly sales totaled over 32 million bushels. This kept total old sales commitments to 9 percent ahead of last year. Sales are projected to be up 2 percent over last year. New crop sales were 4.7 million bushels this week, bringing total 2010-11 sales to 40.7 million bushels.

After the weekly sales were released, it was announced as part of the 24-hour reporting system, that China had indeed purchased 9 1/2 million bushels of 2009-10 U.S. corn and 5.1 million bushels of 2010-11 corn; plus 2.3 million old crop and 4.5 million new crop bushels were sold to unknown destinations.

Including these new sales, China has bought 19 million bushels of U.S. corn combined old and new crop. In an interesting note, while China has bought 19 million bushels of corn, funds have bought about 90 million bushels this week. China plans to auction 1.38 million metric tons of corn from their reserves in the coming week, but only feed mills will be allowed to participate.

Corn had somewhat divorced itself from the action in the U.S. dollar until the dollar's strength couldn't be ignored. The dollar had the rug pulled out from underneath it as we came back from the weekend on the news that a $1 trillion financial aid package for Greece had been approved. This euphoria was short lived when doubts that this amount of money would be enough to contain similar problems in other European countries.

On those concerns, the U.S. dollar resumed its rally to levels not seen since April 2009 and the euro fell to 14-month lows versus the dollar. The dollar action wasn't wasted on the crude oil market as prices collapsed to levels not hit in three months and products took a negative turn also. Corn caved to outside pressure to close out the week on a dismal note.

The May USDA report cut ending stocks from 1.899 billion bushels for 2009-10 to 1.738 billion bushels. This was accomplished by reducing yield from 164.9 to 164.7 bushels per acre, which lowered production 21 million bushels to 13.11 billion bushels. Feed/residual dropped 75 million; Food, Seed and Industrial was raised 165 million; ethanol up 100 million to 4.4 billion bushels, which brought domestic usage up 90 million bushels. Exports were increased 50 million bushels.

Highlights of the 2010-11 balance sheet include a yield of 163.5 bu./acre and 88.8 million acres for production of 13.37 billion bushels. Ending stocks are projected at 1.818 billion bushels. World ending stocks were pegged at 147 mmt for the 2009-10 crop year and 154.2 mmt for next year.

OUTLOOK: July corn lost 9 cents this week, closing at $3.63 and the December contract was down 6 cents at $3.80. December corn hit $3.99 during the week, but hasn't been able to punch through the $4 since March 23. It rallies to the mid-high $3.90's only to fall back to the $3.80 area, which happened this week as the December traced a range of $3.99 to $3.78 3/4. While the recent cool, wet weather put some traders on edge, heat is on the way and corn should be screaming out of the ground next week. Can China buy enough to outweigh this scenario and fight outside influences as well? If weather remains cooperative, the trend will be down longer term, but we'll look for bounces along the way. In the July contract, support is $3.50/$3.35 with resistance at $3.72/$3.85. We may be set to make a move outside the $4-$3.80 range in December with next support at $3.75/$3.50. 

SOYBEANS - Soybeans followed the same pattern as corn this week, staging a rally in the first half of the week, only to fall back in the latter half. The positive influences in corn were shared with the soybeans, including new business expectations. However, U.S. soybean sales are now slowing down as expected. Weekly sales at 9.6 million bushels were down 7 percent from the previous week. Sales to China were only 29 percent on this week's total. New crop sales were 8.4 million bushels, pushing that total to 125 million bushels or 25 percent more than last year at this time.

The balance sheet for 2009-10 as reported by the USDA May 11 increased the crush 5 million bushels and exports 10 million bushels, while lowering the residual line 15 million bushels. These changes offset each other leaving ending stocks at 190 million bushels. In the first official balance sheet for 2010-11, planted acres used were 78.1 million acres, yield 42.9 bu./acre for production of 3.31 billion bushels. Ending stocks are forecast at a whopping 365 million bushels. If realized, this would be the biggest ending stocks number since 2006-07 when they were 573 million bushels. The projected average on-farm price for the 2010-11 marketing year is $8 to $9.50 per bushel versus $9.50 for this crop year. World ending stocks for this year are forecast at 63.8 mmt and 66 mmt for next year.

The National Oilseed Processors Association's Soybean Crush in April was disappointing at 131.7 million bushels when traders were anticipating 135.8 million bushels. The oil stocks were also larger than expected at 2.81 billion pounds versus 2.75 billion estimated.

OUTLOOK: July soybeans were down 6 1/2 cents this week to settle at $9.53 1/2 and the November contract was 8 cents lower at $9.26 1/4. The April low in the July beans at $9.41 1/2 is within striking distance and remains first support, but the $9.20/$9.30 level is certainly doable. Resistance stays at $9.75. Support in the November contract was essentially hit at $9.21 this week, and now drops to $9.06 (the low in March), then $8.75 - for now. Until the bean crop is better established, we could be in for trading range in the short run. If the crop develops normally, we're likely to see lower prices.

Nystrom's notes: Closing changes this week as of mid-afternoon May 14: July Minneapolis wheat was 28 3/4 cents lower, Kansas City wheat was down 30 cents, and Chicago wheat was off 39 cents. Gold hit an all time high this week at $1,246.50 and closed $17.40 higher on the week. The Dow managed to close up 217 points in spite of a late week sell-off. The U.S. dollar index was up 1.61 at 86.06 after trading to its highest level since April 2009.

<center>...</center><i>Phyllis Nystrom is a

market analyst with Country Hedging in St. Paul.</i>