Lots Of Uncertainty Keeping Traders Rather Noncommital

February 25, 2013 12:39 AM

What Traders are Talking About:

* March 1 sequestration, South America, Plains weather in focus. Grain traders have three primary focuses to start the week -- the across-the-board spending cuts (sequestration) which will take effect March 1 if there is no deal reached prior to that, South American weather and soybean shipments and Plains weather. Government leaders will meet throughout the week trying to reach a deal prior to Friday's deadline for sequestration to take effect. Most are expecting an 11th hour compromise -- or that the can will get kicked a little further down the road (again). On the South American front, forecasts call for mostly dry conditions in Argentina this week, although there is a chance for late-week rains. Southern Brazil is in line for some scattered rains this week. Traders are also watching the labor situation in Brazil very closely as the key soybean shipping season is about to get started. Port workers have called off the planned work stoppage for Tuesday, but labor unrest is still an area of concern. Areas of the Southern and Central Plains are getting another heavy winter storm, which is providing needed precip to the Plains and limiting buying interest in wheat.

The long and short of it: News is mildly supportive for soybeans and slightly negative for wheat, with corn caught in the middle to start the week. Uncertainty is keeping traders rather noncommittal.

* China's manufacturing sector slows. China's HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, a four-month low, after a final reading of 52.3 in January. While China's vast manufacturing sector pulled back this month, it remains above the expansion threshold (50). The biggest challenge for China's manufacturing sector remains exports, as the export orders sub-index dropped to 49.8 last month, according to the HSBC data.

The long and short of it: The Chinese HSBC flash PMI data reiterates the road to China's economic recovery isn't going to be smooth since the country relies so heavily on exports, primarily to Europe and the U.S., for its overall economic strength.

* Cattle on Feed should encourage bull spreading. Last Friday's Cattle on Feed Report showed On Feed at 94%, Placements at 102% and Marketings at 106% of year-ago levels. The On Feed category was right in line with the average pre-report guess, while Placements and Marketings were heavier than anticipated. Placements topped year-ago levels for the first time in eight months, likely the result of calves that were held back from being placed last fall finally being pushed into feedlots by poor pasture conditions in the Plains.

The long and short of it: The report data is friendly and should encourage bull spreading (buying nearby futures at a greater clip than deferred contracts), especially given $2 higher cash cattle trade in Kansas and Nebraska late Friday.


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