November soybeans were trading 25 1/2 cents higher near 7:30 cst this morning. China soybean futures were up 0.57% overnight. At their auction of state reserves, 278,625 tonnes of soybeans were sold out quickly at sharply higher prices. Malaysia palm oil futures were up 1.7% overnight. China shares were stronger overnight, with Hong Kong shares managing to breakout to a fresh two week high. Apparently investors in China were cheered by favorable US housing data yesterday and also from mostly positive corporate earnings news flow from the US Wednesday. European shares were also higher to start today but rising Spanish yields in the wake of a shorter term auction overnight, did seem to dent optimism in the Euro zone. Apparently the world saw the bigger than expected jump in US housing starts yesterday as a positive development, but it is possible that increased talk and focus on the fiscal cliff ahead will serve the temper the quasi risk-on vibe in place at the start of the Thursday US trade.

Heightened concerns that soybean crops in the Midwest will take a turn for the worst in the next 10 days as areas of extreme stress (western Corn Belt) more than offset the few areas of the eastern Corn Belt which could see improving crop conditions ahead. Meal demand is surging as end user coverage was very poor coming into the month and the surge in prices caught commercial traders off guard. A two-year low in weekly ethanol production only added to the tightness as DDG supply tightens. Fears that ethanol production will dip further, lower yield estimates and ideas that dairy and poultry producers will need increased coverage has helped to support. All the 89 meal registrations were cancelled leaving no meal in deliverable position. August soybeans traded as high as 1723 overnight to a new all-time high and this is up from last Thursday's low of 1572 1/2.

The weather outlook for most of the Midwest looks detrimental to US soybean yields the next two weeks. The southeast and delta could see showers this week and restricted rainfall may fall in parts of Northern Illinois and Indiana by the weekend. Rainfall amounts are expected to be light but will benefit soybean crops. Temperatures are expected to reach 95-105 degrees in Kansas, Missouri, South Dakota, Iowa, and Nebraska into the middle of next week. Even in Chicago, mid-to upper 90's are expected for Sunday through Wednesday with 99 the forecast for Wednesday. The heat and extremely dry topsoil conditions are factors which will limit the benefit of the rain event overnight.

Cash soybean markets were firm yesterday, causing the August soybean contract to gain on forward months.

The trade is expecting soybean yields to fall with some estimates emerging near 37 bushels/acre this week. With a 37 yield, ending stocks pencil out at a negative 129 million bushels or about 250 million bushels below the pipeline minimum. Most traders see pipeline minimum supply near 110-130 million bushels.

The USDA assumes demand this season will be 3.105 billion bushels which is down 11 million from last year, 175 million from two years ago and down 256 million from three years ago. Traders believe that reducing demand would be easier to absorb if South America supply was adequate but it is not. In the world supply/demand update, total foreign production for the 2011/12 season was down 22 million tonnes from last year which is 807 million bushels. The sharply higher trade in soybeans reflects the fear of extremely tight soybean supplies mixed with increased demand over the next couple months.

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