I look forward to USDA reports almost as much as a trip to the dentist for a root canal. At the very most, it is interesting to see the reaction after another round of estimates. USDA increased corn production to over 13 billion bushels and soybean production to another record -- 3.25 bb. Traders seem to be taking the stance of not believing the hype Friday morning as row crops are rallying. How did the markets react? As of this writing, corn and soybeans are putting together solid rallies fueled by both sides of the market.

December corn since hitting a low of $3.02 in September has rallied almost 70 cents. How is this rally possible if the crop keeps getting bigger? Part of the reason is demand -- USDA estimates an all-time record of 800 mmt, leaving little margin for error, and world ending stocks are decreasing. Also, futures spreads have been weakening indicating underlying fundamentals are growing less bearish. If the crop was as big as mostly everyone believes it is common sense would say that the opposite should be taking place.

In soybeans, market action also makes me wonder whether this crop is as large as advertised. Spreads are weakening as well, with additional commercial buying interest strong this morning, indicating underlying fundamentals are growing more bullish. Deferred spreads are inverted, which paints an even more bullish picture. However, longer-term increases to world production if realized will weigh on prices.

Looking strictly at Friday's session, the market has simply disregarded the large numbers at this point in favor of bullish weather factors. A killing freeze is expected to take place over a large portion of crop land west of the Mississippi with parts of the eastern Corn Belt also being affected. How much damage it will do is anyone's guess, but there is no question that immature crops will be negatively impacted. Throw in for good measure overly wet conditions in the Delta and eastern Corn Belt, and you have a harvest that continues to be delayed. If U.S. production is slashed like Lanworth is projecting (see previous blog post by Pat Hill on Lanworth for more information), and also falls in line with what the spreads are telling us, then grains may be in for an extended rally if large demand projections are realized.

Stay tuned for what is sure to be an interesting next couple of months in Chicago.

-- by John Sanow, DTN/The Progressive Farmer Analyst