Macro Headwinds Start To Blow Harder Again

March 5, 2012 12:48 AM

What Traders are Talking About:

* China lowers economic growth and inflation targets. As part of the annual National People's Congress state-of-the-nation meeting, Chinese Premier Wen Jiabao sets the economic outlook and inflation forecasts for the year. For the past eight years, China has strived to achieve at least 8% GDP growth, but that forecast has been lowered to 7.5% this year. If China's economic growth slows to that level, it would be the lowest since 1990. Meanwhile, this year's inflation target was put at 4%. That's consistent with an inflation level China unsuccessfully achieved last year.

The long and short of it: A slowdown in Chinese economic growth to 7.5% would be a warning sign for the global economy. But it's important to note the GDP target is seen as a floor, while the inflation target is expected to be a ceiling.

* China doesn't need corn this year, but will later. The head of China's state-run grain trading firm COFCO says corn supplies are plentiful after a record harvest last year, but growing domestic consumption will increase the country's need for corn in years to come. As a result, the Chinese government will strictly control corn processing for non-feed purposes, according to the National Development and Reform Commission. Despite the proclaimed lack of need for corn imports, China has allocated 7.2 MMT of corn import quotas for this year, unchanged from 2011 quotas. But of that total, 60% are for state-run firms. The head of China's largest feed processor says the private sector needs more of the quota as feedmakers try to fill expanding feed needs.

The long and short of it: Chinese demand for corn remains very much uncertain. Despite record production last year, Chinese importers will buy U.S. corn if prices fall sharply, especially if prices fall below domestic levels.

* Investors continue to eye Europe. Greece has passed new austerity measures and EU officials have signed off on the second batch of emergency funding for the country. Now Greece must get private holders of its debt to agree to a voluntarily restructuring needed to meet the conditions of the bailout. The deadline for that voluntary write down is Thursday. If it fails to get enough support for a voluntary debt swap, it can use legislation to force debt holders into the write downs -- if it has the support of two-thirds of investors. Meanwhile, weak economic data caused concerns about the euro-zone falling into recession to resurface. Markit's Eurozone Composite PMI, which gauges the activity of the manufacturing and services sectors, slipped to 49.3 in February,down from a preliminary reading of 49.7 and below January's reading of 50.4.

The long and short of it: The challenge of grain and soy traders to ignore outside markets will be strong to start the week given the lower Chinese economic growth target and the ongoing euro-zone concerns.


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