What Traders are Talking About:
Overnight highlights: As of 6:00 a.m. CT, corn futures are trading around a nickel higher, soybeans are 5 to 10 cents higher and wheat futures are narrowly mixed. Much of the overnight price strength is tied to expectations for huge weekly export sales totals this morning. The trick will be for bulls to maintain buying interest, especially if export sales aren't stronger than anticipated. Cattle futures are expected to be mixed this morning while hog futures are called to open weaker after a poor close Wednesday.
* Not just export demand that's perking up for corn. Yesterday I talked about a pickup in export demand from South Korean buyers, which followed purchases of at least 1.2 MMT of U.S. corn by Chinese firms earlier this month. There's little doubt the drop to three-year lows in front-month corn futures is sparking increased export demand. But the pickup in demand isn't just on the export side. Ethanol production for the week ended Oct. 25 was the strongest since June of last year at 911,000 barrels per day. Obviously, the drop in corn prices is also encouraging more ethanol production as margins have improved. Plus, the drop in corn prices along with more supplies is making it more attractive for livestock and poultry producers to put more corn back into feed rations.
The long and short of it: With harvest still in full swing, the pickup in demand is only enough to slow the price slide, not start a price recovery. Strong and consistent demand is needed to encourage funds to actively cover their record short position they have amassed.
* Big export sales coming. USDA will release huge export sales totals this morning as the data will be for the weeks ended Oct. 10, 17 and 24 as the agency plays catchup following the 16-day government shutdown. For the three weeks combined, traders expect: corn sales between 1.8 million and 3 million MT; wheat sales between 1.2 million and 2 million MT; soybean sales between 2.1 million and 3 million MT; soymeal sales between 700,000 and 1.5 million MT; and soyoil sales between 40,000 and 180,000 MT.
The long and short of it: Huge export sales totals are coming, but everyone already "knows" that. For the data to spark active buying interest, the sales totals must be even stronger than expected.
* Fed to continue QE. As expected, the Federal Open Market Committee (FOMC) said following its two-day meeting last week it will continue to purchase mortgage-backed securities and long-term Treasuries totaling $85 billion per month. The Fed is going to fully maintain its monthly bond purchases until there’s more evidence of sustained economic growth. While many economists question the positive impacts to the economy from the quantitative easing, the stock market is getting a definite boost. The major U.S. stock indices have rallied to all-time highs during their two historically weakest months of the year -- September and October. And they marked new highs in the face of uninspiring quarterly earnings, a sluggish jobs market and debt/budget uncertainty in Washington that led to the 16-day government shutdown.
The long and short of it: The stock market will eventually refocus on fundamentals. When it does, some of the money that’s flowing into equities will move into commodities, though that’s likely to be later rather than sooner.
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