Grains search for a liquidation low.

Grain futures are mixed this morning after initially seeing a rally across the board overnight. Soybeans moved higher as China's PMI index showed a surge that reflects expanding domestic demand for commodities and the hope for a Chinese recovery. French milling wheat opened softer early this morning and is down 3.50 MT at a new low for the year at 270.75 MT, reversing overnight gains in the wheat market.

Heavy fund liquidation has been relentless since last Wednesday. The USDA Farm Form expedited liquidation as a focus shifted from South America to potential record yield growth of Northern Hemisphere crops. Open interest rose yesterday, implying end-user buying in yesterday's selling. It's the first day of the month, and yesterday or today's trading could produce a temporary low, creating what now will be labeled a bear rally.

The Argentine drought, which has lately lost headlines, remains unrelenting, with extreme heat rolling in with limited rainfall over the next two weeks. The Argentine corn crop moves into pollination, and production losses will start to deepen as the Argentine corn yields will now come into question. After a few widely scattered showers of 10% coverage over the next 36 hours, the dry weather returns with highs in the 90s to potential lower 100s. The 11-15 day forecast offers limited rain with on going warm temperatures.

Live cattle and feeders closed higher yesterday, with February exploding $2.50 into expiration to $167.50 compared to last year's expiration of $140.50. It was a record-high expiration for the February contract, with $158 being the expiration in 2015. Yesterday choice boxed beef gained $0.61 while select was unchanged. A small number of cattle traded in the IA/MN region with live sales quoted at$165 which was again a $1 over last week. Active trade is expected later this week at steady to $2 higher. There is no indication of a top, but the rallies on futures remain labored, with gains constantly being checked during the session.

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