Keep A Watch on Macro-Economics As Headwinds Start To Blow Harder Again

April 18, 2012 03:57 AM

What Traders are Talking About:

* Risk pendulum continues to swing. The risk pendulum is swinging in bears' favor today as macro-economic headwinds coming from Europe are building. Rising bond yields in Italy and Spain are a concern, particularly in Spain. While some euro-zone officials are saying there are no signs Spain needs an bailout program, investors aren't so convinced. With a general risk-off attitude to start today's session, the U.S. dollar is firmer, while the U.S. stock market is weaker and commodities are expected to face general selling pressure.

The long and short of it: Keep a close watch on the macro-economic situation. Concerns had eased recently, allowing commodities and the stock market to focus more on fundamentals. But if macro-economic headwinds build, it would make it harder to attract buying interest to the grain and soy complex.

* Corn planting 17% complete. USDA reported corn planting as of Sunday reached 17% complete, which was at the low end of expectations. Of the Corn Belt states, Illinois is leading the way with 41% of the corn crop seeded (17% last week and 6% on average). Indiana has 24% of its corn crop planted (6% last week and 2% on average), Iowa 5% (1% last week and 3% on average), Minnesota 7% (none last year and 2% on average), Nebraska 4% (2% last year and 1% on average), Missouri 39% (23% last week and 15% on average) South Dakota 4% (2% last week and 1% on average) and Ohio is 10% planted (2% last week and 1% on average). Cold overnight temps and rains last weekend kept more corn from being seeded. A band of rains started in South Dakota and Nebraska overnight and is building as it moves across Iowa and Minnesota this morning. The rains are expected to move into the eastern Corn Belt later today. Additional rains are forecast for the next two to three days, so planting efforts will be slowed in some areas. But next week's weather looks relatively rain-free and temps are expected to warm.

The long and short of it: While the corn planting pace is no longer record fast, it's quick. That will continue to limit near-term buying interest in new-crop corn futures unless China buys corn and old-crop futures pull new-crop contracts higher. But with the old-crop/new-crop spread having tightened around 26 cents in the past two weeks, there's room for traders to push old-crop futures higher without new-crop actively participating in a rally.

* Another sign of rising Chinese corn demand. The Chinese government has reportedly cut the subsidy it pays to corn-based ethanol producers, according to state-run COFCO Biochemical Co. A story in the Oriental Morning Post says COFCO Biochemical officials say the subsidy is 500 yuan ($79.50) per ton this year compared to 1,276 yuan ($202.87) per ton last year.

The long and short of it: China continues to make attempts to slow industrial production of corn as food/feed demand is on the rise. With corn demand outpacing supplies, it's likely China will continue to buy U.S. corn, especially on sharp price breaks.


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