Macros vs. Fundamentals in Grain/Soy Markets

November 10, 2011 12:12 AM

What Traders are Talking About:

* Fundamentals vs. macros. There was little doubt grain and soy traders were more focused on macro-economics, specifically the happenings in Italy, than USDA's report data yesterday. And traders will continue to closely watch happenings across the pond very closely. But market fundamentals still matter and are having an impact on prices. Given the major headwinds coming from Europe and the highly negative price performance in outside markets, losses in the grain and soy complex were relatively minor. Corn is holding up the best, with the December contract unable to break away -- up or down -- from the $6.50 mark. Wheat is the next strongest because of its price relationship with corn and the strength in the Minneapolis market. Soybeans are currently the weakest link.

The long and short of it: Bullish fundamentals are helping grain and soy futures tread water. But until macro-economic concerns ease, they aren't likely strong enough to trigger a sustained price rally.

* Markets take a deep breath. Wednesday's panic selling across much of the investment world has eased, with many markets making corrective recoveries overnight. Investors are hopeful incoming new leadership in Greece and Italy will be able to stabilize their financial situations. But new leadership doesn't mean a magical cure for all that ails these countries. The euro-zone remains a mess and will need to make strong and critical decisions in the days, weeks and months ahead.

The long and short of it: Investors will remain on edge for the foreseeable future, which points to increased market volatility throughout the investment world and a potential meltdown if economic conditions worsen.

* Soybean exports sluggish on slack Chinese demand. Soybean exports are off to a slower-than-hoped start to the 2011-12 marketing year. As a result, USDA cut its export forecast by 50 million bu. yesterday to 1.325 billion bushels. Soybean exports are now forecast to fall 11.7% from the 2010-11 marketing year. A big culprit is slackened Chinese demand. In October, China imported only 3.81 MMT of soybeans -- 7.7% less than September and 5.4% under year-ago -- due to poor crush margins. Chinese soy imports are expected to rebound in coming months, but the timing of a slowdown in Chinese imports is unfortunate for the United States. With the Brazilian growing season off to a very fast start, exports from the country will start sooner than normal. That means there will be competition for U.S. soybeans by the time Chinese demand may start to increase.

The long and short of it: Poor export demand is the reason soybeans are the weak link in grain and soy futures.


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