Editor's Note: Tim Emslie, Country Hedging market analyst, is sitting in this week for Phyllis Nystrom, the regular "Grain Outlook" columnist.

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The following market analysis is for the week ending May 28.

CORN - The corn market featured plenty of interesting news items during the week but, despite some price swings, the market had seen limited overall price change until Friday, when futures fell hard. Corn prices had been slightly higher on the week prior to the Friday collapse. Potential increases in demand have been supporting the market lately, specifically the Chinese interest in buying corn.

On Friday, the market latched onto something it's much more accustomed to dealing with: U.S. weather. A warm spell at the end of May has generally been helpful for crop development, and weather forecasts ahead of the Memorial Day weekend promised rainfall during early June, including those areas in the western Corn Belt that were a little behind on precipitation over the last 30 to 60 days. For the week, July corn was down 10 cents and December corn was down 5.25 cents.

Weekly export sales were strong at 40.6 million bushels, but China's activity was the most closely watched item on the report, and those data were a little ambiguous. China was a net buyer of 241,000 metric tons for the 2009-10 marketing year, but canceled 130 tmt for 2010-11. For the record, China now has 595 tmt of purchases on the books for 2009-10, but nothing on for 2010-11. Shipments are expected to start arriving in China in June.

There were multiple ways to read the cancellation: was the 2010-11 sale simply misreported earlier; was an importer waiting for more certainty as to the process before declaring for the current marketing year; or did plans change regarding new-crop imports?

There was a report mid-week that said China was preparing to issue corn import licenses for an additional 5 mmt, but the bureaucratic nature of the import process leaves the market in doubt as to how big the import program will be. Our best guess at this point is around 2 mmt for 2009-10, but much hinges on how the Chinese crop develops this summer.

Monthly March ethanol production was reported this week at 1,103 million gallons which was a 32 percent increase from March 2009. Ethanol production to date is now 22 percent ahead of last year, putting us on pace to meet the current U.S. Department of Agriculture corn-for-ethanol-usage estimate of a 20 percent increase.

Outlook: The December corn contract traded primarily between $3.75 and $3.95 since the end of March. In old-crop contracts, $3.45-3.75 has nicely defined the range where end users buy near the bottom and farmers sell near the top. Funds have a small long position, but have not been driving the market to new price levels. Since we are now in the summer, expect weather forecasts to gain further prominence and be the cause of a move outside of those ranges.

SOYBEANS - Soybean planting fell behind the five-year average planting pace for the first time in 2010, but bean prices didn't rally until late in the week. Warmer weather should help alleviate some of the wetness that had slowed planting.

Beans fell on Friday with the corn, but the July contract only closed down 3.25 cents for the week. Strong cash markets were the main story of the week, providing support to the complex. The nearby contract was down 51.75 cents for the month of May, drying up farmer sales. While exports have slowed, some business continues to come the United States' way including additional sales to China this week. Net sales this week were only 6.5 million bushels, but China booked an additional cargo.

The Census soybean crush for April was reported at 136.5 million bushels, a little less than expected and 7 percent below last April. However, the crush for the marketing year so far still stands 9 percent ahead of last year.

OUTLOOK : Soybeans declined steadily during the month of May, establishing a new 2010 low during the month. Chart support is near $9.00, with resistance at $9.40. Unlike corn which has the potential for unexpectedly strong demand in the form of Chinese exports, bean demand is pretty well dialed-in for the summer. Add in the backdrop of a bigger percentage increase in ending stocks year-on-year, and beans are highly dependent on weather for support.

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Tim Emslie is a market analyst with Country Hedging in St. Paul.