China Purchases Corn, Soybeans and Soyoil; Funds Buy The Board

October 12, 2011 12:54 AM

What Traders are Talking About:

* China buys corn, beans, soyoil. Export sources indicate China's state stockpiling agency, Sinograin, bought 1.5 MMT of corn (mostly U.S.) on Tuesday, along with 700,000 MT to 800,000 MT of soybeans (U.S. or South American) and 100,000 MT to 120,000 MT of soyoil (no origin specified). The sources say Sinograin is looking purchase 2 MMT of beans and up to 700,000 MT of soyoil, but gave no tonnage for additional corn purchases.

The long and short of it: China's aggressive buying of corn, beans and soyoil ahead of USDA's reports this morning suggests they feel seasonal lows are in place and are fearful prices are headed sharply higher.

* Huge volume, big fund buying. Soybean futures set a volume record at the Chicago Board of Trade Tuesday. Ironically, the previous volume record was set exactly one year ago -- Oct. 11, 2010. Trading volume was also hefty in corn, soymeal, soyoil and Chicago wheat futures. Funds were aggressive buyers, purchasing an estimated 30,000 contracts of corn, 25,000 contracts of soybeans, 7,000 contracts of Chicago wheat, 6,000 contracts of soymeal and 8,000 contracts of soyoil. After aggressively dumping grain and soy futures during September, funds have been much more active on the long side of the market through the first seven trading days of October.

The long and short of it: The big wave of fund-led buying in the grain and soy markets yesterday was triggered by demand news (see item above). But in a broader view, this could be the trigger than gets speculators actively flowing money into the long side of the market again.

* Corn limits expand to 60 cents today. Tuesday's strong price surge in grain and soy futures suggests traders aren't expecting any bearish surprises from USDA. But in the case of the corn market, it also means daily trading limits are expanded to 60 cents after yesterday's limit-up performance. As a result, there's greater potential risk/reward today. USDA's October crop reports need to be bullish to build upward momentum. And for the report data to be bullish, USDA likely needs to lower harvested acres -- as is widely expected.

The long and short of it: Tuesday's strong price surge lowers the odds of a bullish surprise from USDA, although it doesn't completely eliminate that possibility, especially if there continues to be strong export demand.

* Slovakia votes 'no' on EFSF, but expected to approve soon. Slovakia's parliament voted Tuesday against expanding the European Financial Stability Facility (EFSF) -- the euro-zone's emergency fund. But the only country in the 17-member bloc to not ratify changes to the EFSF, is expected to approve changes -- possibly as soon as the end of the week. As a result, there's a growing sense the euro-zone is moving in the right direction to address the debt crisis.

The long and short of it: The tide has shifted dramatically on the risk front. Investors are again taking on greater risk amid the assumption the worst of the euro-zone problems are known -- for now.


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