Focus Shifts To USDA's January Reports

January 7, 2013 12:20 AM

What Traders are Talking About:

* USDA reports ahead. Grain traders are focused on USDA's barrage of reports on Friday. In addition to the monthly Supply & Demand Report, USDA will issue its Annual Production Summary, Quarterly Grain Stocks Report and Winter Wheat Seedings Report. While much of the pre-report focus is on USDA's final production estimates for corn and soybeans, it's the Quarterly Grain Stocks Report which has been the major market-mover in the past, primarily for the corn market. If USDA lowers its corn crop estimate (likely via a reduction in harvested acres), it will likely offset the decline in supplies with reduced exports as carryover is already unbelievably tight. But Dec. 1 corn stocks would then come in lower than anticipated, which would be supportive for the market. For soybeans, any movement on the crop will be to the upside, although stronger usage is likely to keep carryover near unchanged.

The long and short of it: The volume of data USDA will release Friday almost certainly guarantees there will be some surprises. Given recent price pressure, expect traders to cover some short positions ahead of Friday's reports.

* Brazil weather remains mostly favorable. Heavy rains were seen through areas of southern Brazil over the weekend and are forecast to continue early this week. While that may cause some isolated flooding, crop conditions remain generally favorable. The rains are forecast to move into some of the drier northern production areas of central Brazil later this week. Those rains will be welcome, as some of these areas have been dry for over 20 days. In Argentina, producers continue to fight soggy conditions in their attempt to get this year's crop seeded. Drier weather is expected in Argentina this week, although hot temps may stress crops in some areas.

The long and short of it: Brazil remains on pace to grow a record soybean crop, which is causing China to cancel some U.S. soybean purchases. Collectively, that's weighing on the soybean market.

* Dollar continues to strengthen. The U.S. dollar is just modestly higher this morning, but after strong gains late last week, the fact the greenback continues to strengthen is notable. Key is whether the dollar takes out last Friday's high. If that happens, it could cause grain and soy futures to continue the recent sharp price slide.

The long and short of it: Grain markets should have more of a fundamental focus this week with USDA's January reports likely to set the price tone for the rest of winter. But if the dollar continues to strengthen, that could help influence price action.


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