November Jobs Data Better Than Expected

December 7, 2012 01:46 AM

What Traders are Talking About:

* Jobs growth slows, but data better than expected. The U.S. economy added 146,000 non-farm payrolls in November, which was stronger than the average trade guess of 93,000 jobs added and above a downwardly revised payrolls number of 138,000 for October. The unemployment rate dropped to 7.7%, the lowest since Dec. 2008, from 7.9% in last month's report. September and October non-farm payrolls were revised down a combined 49,000 from previous reportings (-16,000 for September and -33,000 for October).The Labor Department says Sandy had little impact on November jobs reporting for this report, although that likely means there will be downward revisions in the next report.

The long and short of it: Broad market reaction has been positive with the U.S. dollar index and stock futures rallying after the better-than-expected jobs data. Of course, a stronger dollar is negative for grain and soy futures.

* Plenty of 'reasons' for soybeans to rally. Soybean futures continue to rebound from the November lows after the sharp price plunge earlier this fall. Fundamental support for the rally is coming from both the supply side and the demand side. On the demand side, China is ramping up purchases after having canceled 600,000 MT of U.S. soybean deals several weeks ago. Chinese demand is expected to continue, with crushers thought to still need around 3 MMT of soybeans for first quarter delivery. But domestic demand is also strong as U.S. crushers are also trying to get their hands on available soybean supplies. Until new-crop South American supplies are ready for export in the latter stages of the first quarter next year, the U.S. is pretty much the sole supplier to the world. On the supply side, traders are focused on South American production. While a record South American crop is still anticipated, production forecasts in Brazil and Argentina have eased from initial projections due to weather. Because the world needs a record crop from Brazil and Argentina, South American weather will be closely monitored throughout the growing season.

The long and short of it: Soybean futures got too cheap on the price plunge from the September high to the November low. Now the market is trying to find a price that slows use to preserve tight supplies. That hasn't happened yet.

* Germany cuts economic outlook. Germany's central bank cut its 2013 economic outlook for the euro-zone's largest economy and even warned Germany could slip into recession as the euro-zone debt crisis takes hold. Bundesbank now forecasts German economic growth at just 0.4% next year, down from its prior outlook for 1.6% growth. Industrial orders and output have dropped in recent months, with exports falling at their fastest pace since late 2011. The dour economic outlook from Germany comes just one day after the European Central Bank cut its forecasts for next year largely due to weaker growth prospects for euro-zone heavyweights Germany, France and the Netherlands.

The long and short of it: Macro-economics are going to continue to produce negative headwinds. That doesn't mean grain and soy futures can't rally in the face of these headwinds, but it makes it more difficult to sustain a price rally.


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