Fed Gives Grains A Boost

September 19, 2013 01:24 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading 4 to 5 cents higher, soybeans are mostly 7 to 13 cents higher and wheat futures are mostly 9 to 12 cents higher. Bulls should carry momentum from the overnight session into day trade. Cattle futures are expected to open mixed to firmer and hogs are called mixed to lower.


* Fed gives grains a boost. The Fed will maintain its $85-billion-per-month in Treasury and mortgage-backed security purchases it decided yesterday following its two-day Federal Open Market Committee. The Fed was widely expected to start reducing its asset purchases, but it decided to "await more evidence that (economic) progress will be sustained" before tapering. The surprising Fed action (inaction) triggered a sharp market reaction as the U.S. central bank was widely expected to start phasing out its economic stimulus. The U.S. dollar plunged on the lack of tapering from the Fed, while risky assets, including grains, found support. Economists and investors are left wondering when the Fed will start easing its bond purchases.

The long and short of it: The boost grains are getting from the lack of tapering is short-term. Once the Fed-induced risk-on euphoria wears off, traders' attention will shift from macro-economics back to fundamentals, which means corn and wheat will need fresh demand news to attract sustained buying interest.

* Muted reaction to huge bean sale. USDA announced 2.112 MMT of soybean sales via the daily reporting system on Wednesday, including 1.93 MMT to China that was the fifth largest one-day sale (the top four were all to China). There was a muted reaction, however, as traders assumed the business was part of the 4.83 MMT in non-binding letters of intent to buy a Chinese trade delegation made earlier in the week. If that's the case, another large daily sales announcement could (should) be coming very soon. By law, exporters are required to report to USDA any export sales activity of 100,000 MT or more of one commodity, made in one day to one destination, by 3 p.m. CT on the next business day following the sale. Export sales of less than this quantity must be reported to USDA on a weekly basis.

The long and short of it: While the huge export sale to China yesterday drew a muted market reaction as it's believed to be part of China's annual "Buy America Tour," the fact of the matter is that the soybean market still has strong demand -- especially from China -- which is price-supportive.

* Rains falling. The wetter weather pattern since late last week is continuing this morning with radar showing scattered rains (though heavy in some locations) across areas of the Corn Belt. Rains have been highly scattered across the Corn Belt this week, but as a whole, this has been the wettest week in months. For areas where late-maturing crops are still trying to fill, the rains are very timely. But for areas where crops are shutting down or are already done, the rains are much too late.

The long and short of it: These late-season rains will help crops some, especially soybeans. But if we get into a prolonged wetter pattern this fall, it could be detrimental to yields and crop quality. We're far from that point yet, but in a year of extreme weather, it's something that could happen.


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