Volatility Increases As Grain Traders Intently Watch Ukraine Situation

March 24, 2014 01:05 AM
 

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 3 to 4 cents higher, soybeans are 2 to 7 cents higher, SRW wheat is 6 to 9 cents higher, HRW wheat is 3 to 5 cents higher and HRS wheat is 8 to 14 cents higher. Cattle futures are expected to see bull spreading today after Friday's Cattle on Feed Report. Lean hogs are called lower on profit-taking.

 

* Focus remains on Black Sea region. Grain traders continue to intently watch happenings between Ukraine and Russia. The U.S., along with its Western allies continue to levy sanctions against Russia and are supporting Ukraine, but Russia is showing no signs of backing down. With tensions heightening, there is concern grain shipments out of Ukraine will slow, increasing demand for corn and wheat sources from other countries, including the United States.

The long and short of it: The situation in Ukraine is price-supportive for grains as long as tensions continue to heighten, though there's likely to be increased (potentially extreme) volatility as it's very fluid.

* China's manufacturing sector continues to slow. Preliminary data show China's manufacturing sector slowed to an eight-month low this month. HSBC's flash purchasing managers' index (PMI) for March dropped to 48.1 from a final reading of 48.5 in February. HSBC data indicate output and new orders continued to decline, but new export orders were up for the first time in four months. Typically, Chinese PMI data improves in March as it marks the month of full output since December as there is downtime in late January and early February for the Lunar New Year. Weakening economic data out of China points to the Chinese government taking action to boost growth.

The long and short of it: Weak Chinese economic data is being overshadowed by the Ukraine/Russia situation for now.

* COF data negative for deferred live cattle futures. Feedlots placed 15% more calves on feed than year-ago last month, which easily topped expectations. This is the second straight month placements have greatly topped year-ago, signaling there will be a much bigger supply of market-ready cattle by the third quarter. That's price-negative for deferred live cattle futures. But feedlot numbers are still 1% under year-ago at 10.790 million head as of March 1, which is the smallest March 1 inventory since 1999. But the feedlot inventory came in 53,000 head higher than the average pre-report trade guess and is creeping closer to year-ago given the sharp increase in placements the first two months this year.

The long and short of it: The supply situation will remain bullish into mid-year, but if placements continue to surge, it will be less-bullish the second half of the year.

 

Follow me on Twitter: @BGrete


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