Move Torward Risk Aversion Increases as Macro-Economic Headwinds Build

May 9, 2012 03:17 AM

What Traders are Talking About:

* European concerns heighten. Political disarray in Greece following last weekend's elections continues to fuel concerns the country may not get previously agreed-to bailout funding. Meanwhile, concerns with Spain's banking sector are also increasing as the Spanish government reportedly plans require banks to set aside 20 billion ($26 billion) to 40 billion ($52 billion) euros to cover property loans. This news pushed 10-year Spanish bond yields above the critical 6% threshold many investors are closely watching.

The long and short of it: The escalated concerns in Europe are pressuring the euro and supporting the U.S. dollar index and also triggering widespread risk aversion.

* China plans to auction 3 MMT of soybeans. China is planning to sell about 3 MMT of state-owned soybean reserves, according to a Bloomberg News report citing two sources familiar with the situation. The auctions are set to begin at the end of the month and will be from supplies stored in northeastern provinces and harvested around 2008-09. While the planned sales amount to less than one month of China's consumption, they would likely slow demand for imported beans.

The long and short of it: There are hints that Chinese demand for U.S. soybeans may be peaking, but with Brazil and Argentina working with short crops this year, there isn't as much export competition as normal.

* Big day of USDA data Thursday. USDA will release its initial 2012-13 balance sheets tomorrow morning. While traders have a general idea of what the balance sheets will show since USDA released projections at its Outlook Forum, this will be the first "official" release. Traders are expecting USDA to tweak up its corn yield projection from the trendline figure used in the Outlook Forum due to the quick start to the growing season and show 2012-13 projected ending stocks up sharply from the current marketing year. Soybean ending stocks for 2012-13 are expected to be borderline tight while wheat stocks are expected to rise from 2011-12. USDA will also release its first survey-based estimates of the winter wheat crop tomorrow. And on the global front, traders are looking for cuts to USDA's South American soybean forecasts, while the Brazilian corn crop is expected to be increased.

The long and short of it: Largely due to increased macro-economic headwinds, traders have actively trimmed long positions in grain and soy futures heading into USDA's May reports.



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