Demand Perks Up On Price Break

October 3, 2013 01:02 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading around 1 cent higher, soybeans are 3 to 7 cents higher and wheat futures are mostly 2 to 4 cents higher. Demand news is helping corn and soybeans try to stabilize, but traders won't have weekly export sales data to pull direction from this morning, which could cause buying interest to dry up. Cattle futures are expected to open mildly weaker, while hogs are called mixed this morning.


* Drop in price spurring demand. Asian feedmakers are using the price break to extend feed coverage. South Korea and Taiwan have been relatively active buyers of corn and soybeans, which is helping those markets try to stabilize in the face of harvest pressure. But a major purchase has not been seen yet and China has been noticeably quiet aside from a 113,000-MT soybean purchase USDA announced prior to the data shutdown. Part of China's relative inactivity can be chalked up to the country being on national holiday Tuesday through the end of the week. But even during holidays China has a trader at the desks of international trading houses, meaning its possible to make purchases during "down time."

The long and short of it: A major Chinese purchase or consistent buying from other Asian countries is needed for the corn and soybean markets to put in a low in the face of building harvest pressure.

* Shutdown costing the U.S. economy. Some estimates say the U.S. economy is losing $300 million per day due to the government shutdown. And an extended shutdown would shave points off of U.S. gross domestic product (GDP) growth. The last time there was a government shutdown, 1995-96, it was estimated to have been around 0.5% hit to GDP. Some projections say if the current shutdown lasts 2 weeks it would have a 0.3% drag on GDP; 0.7% if it lasts a month. That could, in turn, prompt the Federal Reserve to delay any intended tapering of its monthly bond-buying program.

The long and short of it: Risk aversion due to the government closure has been limited so far, but if the shutdown drags on, traders are likely to become more risk-averse.

* Meat markets also impacted. Meat traders are having to deal with an absence of slaughter and wholesale meat trade data in the face of the government shutdown. Meanwhile, CME Group says certain CME livestock contracts could be affected if the government shutdown is prolonged. If so, the exchange may have to modify its current settlement procedures on such products, including October 2013 lean hogs, live cattle and feeder cattle futures and options. The exchange announced yesterday deliveries against its October 2013 live cattle contract will not be affected by the government shutdown.

The long and short of it: It's hard for traders to trade "blind." With a lack of fundamental data, the tendency is for traders to avoid adding new positions.


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