Focus Turns To Looming Fiscal Cliff

November 7, 2012 12:13 AM

What Traders are Talking About:

* President Obama wins reelection. President Obama won his reelection bid over GOP challenger Mitt Romney by taking virtually all of the swing states. Meanwhile, the makeup of Congress was unchanged. Democrats kept control of the Senate (actually increased the number of seats they will control), while Republicans maintained control of the House. With the election over, attention now shifts to the budget deficit as Congress has work to do with the fiscal cliff looming. Key will be whether President Obama and Republicans can work together to strengthen America or if bipartisanship continues to dominate Washington.

The long and short of it: From a market perspective, many markets are responding relatively positively to the Obama victory. The rest of the world definitely favored Obama over Romney, triggering a positive response in global stock markets overnight. From a monetary policy standpoint, the Obama victory will keep the printing presses rolling out money. Time will tell if that's the right strategy, but it should be supportive for commodities.

* November USDA reports ahead. While the macro-economic focus is undoubtedly on the looming fiscal cliff, grain traders are also focused on USDA's Crop Production and Supply & Demand Reports Friday morning. Based on the average pre-report guesses, traders are expecting a slightly smaller corn crop and a slightly bigger soybean crop estimate compared to month-ago. Carryover projections for corn, soybeans and wheat are expected to be up slightly from last month.

The long and short of it: With a lot of macro-economic "noise" the question is how much focus grain traders put on fundamentals.

* South American weather also being watched closely. Rains are finally starting to improve conditions in central and eastern Brazil, although conditions remain too wet in southern Brazil and especially in central Argentina. Pro Farmer South American crop consultant Dr. Michael Cordonnier cut 3.5 MMT from his Argentine corn crop estimate due to excessive wetness. Dr. Cordonnier made no changes to his Argentine soybean estimate or his Brazilian corn and soybean forecasts. Meanwhile, Oil World says flooding and saturated soils could cut Argentine soybean production by 3 MMT to 6 MMT.

The long and short of it: Concerns in South America are increasing, especially in Argentina and with the corn crop. But warnings on Argentine soybean production are also starting to increase as it's becoming increasingly likely not all acres will get seeded -- even to soybeans. Perhaps the biggest concern in Argentina is that much of the flooded area is the country's top production regions.



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