New Greek Elections Raise Concerns About Debt Default, Exit From Euro-Zone

May 16, 2012 01:08 AM

What Traders are Talking About:

* Rising Greek concerns zap investor risk appetite. Greek politicians, who failed after six rounds of negotiations to form a coalition government, have called for a new election. Anti-bailout leftists are seen as the favorites in the new elections, which heightens odds Greece will default on sovereign debt obligations and ultimately could lead to the country's exit from the euro. The feared exit from the euro has caused Greek citizens to massively withdraw savings from banks and is helping drive bond yields higher across the euro-zone, notably in Germany, Italy and Spain.

The long and short of it: Greek woes are fueling strong risk aversion throughout the investment world, heightening concerns risky assets such as commodities could face a deeper pullback as the timeline for the dust to settle on the macro-economic front seems to be lengthening. It's amazing a country that's so small economically can have the global impact Greece is having, but that's the current environment we live in.

* Another record corn crop seen in China. China is forecast to produce a record corn crop of 197.5 MMT this year, according to state-run China National Grain and Oils Information Center (CNGOIC). Corn plantings are seen up 2.6% from year-ago, while output is expected to rise 3% from last year's record crop. Wheat production is also expected to rise to 120.3 MMT amid higher seedings. Soybean production is forecast to fall 7.14% to 13 MMT on a 6.54% drop in acreage.

The long and short of it: Even with expected record output, Chinese demand for corn imports is expected to rise in 2012-13, with CNGOIC signaling imports could rise 500,000 MT to 6 MMT.

* Chinese soybean import forecast increased. China is now expected to import 58 MMT of soybeans in 2011-12, according to the latest forecast from CNGOIC. That's up 3 MMT from the previous estimate and is reflective of recent strong imports. USDA forecasts 2011-12 Chinese soybean imports at 56 MMT. But given rising demand and the expected drop in soybean production this year (see previous item), USDA sees Chinese imports climbing to 61 MMT in 2012-13.

The long and short of it: While China's economy is slowing, causing concerns with imports for industrial materials, food-based commodity imports will remain strong as China has a lot of mouths to feed. The big concern is that overall macro-economic pressures pull food-based commodity prices lower despite rising Chinese demand.


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