Investors Liking Stocks, Not Commodities

May 16, 2013 01:10 AM
 

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are narrowly mixed, soybeans are 3 to 7 cents higher and wheat futures are mostly 2 to 5 cents higher. While beans and wheat are favoring the upside, there isn't a lot of buying interest, suggesting bulls likely face a struggle to maintain overnight price gains. Cattle and hog futures are expected to favor a mildly firmer tone on the open this morning.

 

* Investors favoring stocks over commodities. The Dow Jones Industrial Average and S&P 500 are making new highs on a near-daily basis and commodity indices are trending lower. It doesn't take much thought to figure out which direction speculative money is flowing. Investors are strongly favoring equities over commodities. While both are risky, stocks aren't as risky as commodities. Given the current macro-economic environment, investors are willing to take on some risk, but not a lot. The rising dollar is also a deterrent to activity commodity investment.

The long and short of it: Until investor risk appetite strengthens, commodities as a whole will struggle as investment dollars are actively flowing to the stock market.

* More South American corn imports expected. Due to a shortage of domestic supplies, corn imports from South America are expected to continue into the Southeast until new-crop supplies are available. A Reuters story late Wednesday put the likely tonnage of imports at more than 2 MMT. Trade sources cited in the story say 1.5 MMT of South American corn were booked through February, while another 500,000 to 600,000 MT are likely between March and August -- 80% of that business has been booked but not yet shipped. Trade sources say South American corn is about $5 to $10 per ton cheaper than domestic corn, but availability is likely just as much of a key in this situation as price.

The long and short of it: South American corn imports should not be a surprise to anyone, but it's still hard for the market to look past this without some negative impact on prices.

* Asian buyers booking needs. South Korean feedmakers have booked more than 600,000 MT of corn and feed wheat the past 10 days. Feedmakers in Taiwan and Japan have inked deals for South African corn, a rare move, this week. And export sources expect more near-term Asian demand. While USDA is projecting record corn and soybean crops (and sharply lower prices) this year, Asian feedmakers feel the break in prices is an opportunity to extend coverage. They realize another serious crop scare would dramatically change the price outlook.

The long and short of it: A pickup in Asian demand has been largely been overlooked so far because the purchases have mostly been for origins other than the U.S., but it still shows prices have dropped to what global end-users perceive to be value levels.

 

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