What Traders are Talking About:
Overnight highlights: As of 6:15 a.m. CT, corn futures are 6 to 8 cents lower, soybeans are 10 to 14 cents lower and wheat futures are 11 to 16 cents lower in Chicago, 8 to 10 cents lower in Kansas City and 3 to 5 cents lower in Minneapolis. Based on overnight price action and the macro-economic concerns, I anticipate bears will keep a solid grip on price action into the market reopening at 8:30 a.m. CT. Cattle futures are expected to trade steady to weaker this morning, while lean hog futures are seen trading mixed.
* Fed tapering to start later this year. Fed Chairman Ben Bernanke said in his post-FOMC meeting press conference yesterday the Fed expects to slow its asset purchases later this year and anticipates ending the bond-buying program around mid-2014 if economic data unfolds as currently expected — the labor market is expected to continue to strengthen, while the FOMC anticipated inflation will run at or below its 2% objective. While investors knew Fed tapering of its economic stimulus was coming, Bernanke's comments are broadly impacting market action. The U.S. dollar index is surging, along with 10-year Treasury yields and global stock markets are reeling.
The long and short of it: The macro environment is price-negative for commodities given Bernanke's comments and expected upcoming Fed action.
* China economic data also a concern. China's HSBC flash purchasing managers' index (PMI) dropped to a nine-month low of 48.3 this month from 49.2 in May. The new-orders sub-index dropped to a 10-month low, signaling domestic and export demand remain the primary concerns. The weak preliminary PMI data for this month is yet another red flag that China's vast manufacturing sector is struggling and that the country's economy is weakening, raising risks the country won't hit its growth targets.
The long and short of it: The weak Chinese economic data is adding to the negative macro-economic environment for commodities this morning.
* Hotter, drier weather getting attention. Grain traders started talking yesterday about potential negative impacts if there's an extended period of hot and dry conditions across the Corn Belt following the very wet spring, which delayed planting and crop development. Forecasts call for normal to mostly above-normal temps through the 10-day window, with some forecasters suggesting the hotter, drier conditions will last into early July. Given the saturated soils, crops will have shallower root systems this year, making them more susceptible to extended periods of hot and dry conditions.
The long and short of it: Potential weather worries will have to battle the macro-economic concerns to encourage sustained buying interest in grain and soy futures.
* Taiwan buys U.S. wheat. Taiwan purchased two cargoes totaling 85,500 MT of U.S. wheat overnight, with guarantees they will be GMO-free. These are the first known purchases of U.S. wheat by Taiwan since the GMO wheat plants were discovered in Oregon.
The long and short of it: Taiwan appears to be loosening up a little after the GMO wheat discovery, but Japan and South Korea are still taking harder lines. Baby steps.
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