Critical Juncture For Corn and Soybean Futures

April 10, 2014 01:03 AM
What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading fractionally to 3 cents lower, soybeans are 6 to 8 cents lower and wheat futures are narrowly mixed. Cattle futures are mixed this morning, while hog futures are under pressure.

* Bearish reaction to bullish data. USDA cut its old-crop corn ending stocks forecast by a greater-than-expected 125 million bu. Wednesday as the export forecast was raised by that amount. But corn futures ended lower on the day and are showing mild followthrough selling overnight. The bearish reaction to bullish data is a potential warning sign the market may have topped. The lack of buying in response to the data signals traders already had the bullish demand news already factored into the market. Therefore, it's going to take fresh bullish data to get the market excited. Traders are shifting their attention to the start of planting. While it's still very slow going in the Corn Belt and the planting season is definitely not going to be earlier than normal, traders always assume the crop will get planted, making it difficult to get support from slow planting progress.

The long and short of it: The corn market is at a critical juncture and needs demand news to be consistently bullish or it must find another source of support.

* China defaults on soy cargoes. The soybean market had a favorable response to the slightly bigger-than-expected cut to old-crop carryover. But selling pressure developed overnight amid news Chinese importers have defaulted on at least 500,000 MT (10 to 12 cargoes) of soybean shipments from the U.S. and Brazil, trade sources told Reuters. The importing companies were unable to secure letters of credit through their banks due to poor crush margins. Chinese crushers are estimated to be currently losing $80 to $100 per ton on the processing of soybeans.

The long and short of it: Old-crop soybean supplies are tight and therefore fundamentals are bullish. But the Chinese defaults are the type of news that can put a top in the market. Near-term price action is critical as to whether soybeans continue to push higher or show signs of the rally running out of steam.

* More red flags from Chinese economic data. China amassed a trade surplus of $7.71 billion in March, which was a stark improvement from the $23 billion deficit in February. But Chinese exports declined 6.6% last month -- the first time for back-to-back months of lower exports since 2009 -- and imports dropped 11.3%, prompting additional concerns with the health of the world's second largest economy. Despite the worrisome trade data, Chinese Premier Li Keqiang says his country has no plans for short-term stimulus efforts, instead the focus is on medium- and long-term economic goals.

The long and short of it: Continued signs of slowed growth in China are a red flag for commodities. Chinese imports will be watched very closely to see if there's a quick recovery from the disappointing numbers the past two months.


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