New fears of slowing growth and sovereign debt

October 13th, 2011


Category: Grains, Oilseeds

Corn showing gains(Farm Futures) – Look for a weaker open across the board this morning, with profit taking likely intensified due to renewed concerns about global economic issues.

Corn should start the session lower, after attempts to bolster prices fell flat when European trading began. USDA’s decision to increase 2011 carryout by 64 million bushels in Wednesday’s monthly production and supply and demand reports will be debated, but for now is the best number the trade has to work with.

Still, confusion over China remains an issue for the market, with a think tank there raising its forecast even more than USDA did yesterday – with both figures well above forecasts by a U.S. trade group. USDA also didn’t change its forecast of Chinese imports, despite trade reports of heavy buying this week to rebuild reserves.

Funds were light sellers yesterday, as December futures finished well off its lows but with a bearish reversal lower. Volume fell 13% to 334,380, according to the preliminary report from the CBOT, while open interest gained 9,991.

Storms moved into the eastern Corn Belt overnight, after brining mostly light rain east of the Mississippi. The five-day coverage map puts the best chances for precipitation in the Great Lakes, though totals mostly will be an inch or less. Official 6- to 10 and 8- to 14-day forecasts out yesterday call for cool, wet conditions to continue for much of the region, with western areas warmer and drier.

Overnight maps are mostly in agreement, though European runs don’t show another trough in the Midwest 10 days out. The latest American model also appears drier after next week’s system moves through.

After rallying sharply the past two sessions, stocks look ready for a lower open this morning on Wall Street, which found new worries to fret about, both in Asia and Europe. Chinese export growth topped 17%, but that was relatively weak, causing its trade surplus to shrink just as threats of a trade war with the U.S. heat up over charges of currency manipulation. The new data appeared to suggest Chinese manufacturing was suffering from the global economic slowdown in part caused by problems with European debt.

Optimism flourished earlier in the week about plans to solve sovereign debt troubles and recapitalize ailing banks. Slovakia, the last country needed to ratify the European Financial Stability Fund, was set to hold another vote on the measure today, after rejection earlier. While approval is expected as part of a deal that helped bring down the government, other plans for fixing the region’s problems are still in the early stages of development.

The global concerns sent investors back into safe havens, like the dollar and Treasuries, with commodities taking a beating. Crude oil retreated to test the $84 level, despite hopes for bullish data in today’s Weekly Petroleum Status Report.

Yesterday’s separate tally by the American Petroleum Institute showed stocks of crude oil, gasoline and distillates were off sharply in the latest week.  Analysts previously surveyed by Reuters had expected crude stocks to be up, with product declines smaller that the API found.

Weekly Unemployment Claims are expected to come in up slightly, remaining over 400,000, while big U.S. firms continue to report third quarter earnings.

Soybeans also could see selling on the open today, after holding onto gains yesterday thanks to supportive USDA data. The government lowered its forecast of 2011 crop ending stocks by 5 million bushels, while traders expected an increase.

Soybeans are also finding favor among Wall Street insiders, who shunned soy earlier in the year, selling off much of their bullish bet. Now those players are backing beans again. Goldman Sachs told clients beans will outperform corn, which is also feeling pressure from index funds expected to rebalance holdings to lower allocations.

Volume in soybeans topped corn for the second straight day. Though volume dropped 21%, it still totaled a strong 339,680 contracts, with open interest up more than 6,000 on light fund buying.

USDA lower its forecast of marketing year exports yesterday, and Chinese imports have indeed been slow, according to trade data, while processors worked off big inventories and focused on purchasing South American inventories. Buying from the U.S. is expected to pick up, with China active this week according to trade reports.

Soybean meal deliveries were light again today, with 7 lots put out today on October contracts, while oil deliveries rose to 393 after fund selling yesterday. Both contracts go off the board at the end of the week.

Vegetable oil prices in Asia were mixed today. While futures on Malaysian palm oil eased, the soy complex the Dalian exchange in China rose, though gains were less than 1%.

Wheat should follow other markets lower today, with little bullish news to buoy traders following yesterday’s bearish USDA report. The government increased its forecast of June 1 carryout, saying exports and feed usage would be lower.

Nonetheless, U.S. livestock operations are reported to still be using wheat long after their normal seasonal flirtation with the grain usually ends after the summer. Exports to regular customers also aren’t bad; Japan as expected bought 4.75 million bushels at its regular weekly tender, with the U.S. getting 43% of the business, with the rest going to Australia and Canada.

Forecasts also remain mostly dry over the next two weeks for the southwest Plains, which should limit hard red winter wheat seeding and germination. Harvest delays in Ohio could also cause problems establishing the soft red winter wheat crop in that key producing state.

Ukraine  should pick up more rain into the weekend, helping planting there, while Argentina saw a light showers over the past 24 hours. Australia is also getting rains in the northeast today.

Volume in Chicago was steady yesterday with 119,939 contracts changing hands. Open interest was up 7,527 on fund selling.

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