One Eye on Fundamentals, One on Macros

November 8, 2012 12:45 AM

What Traders are Talking About:

* Waiting for USDA's reports with an eye on macros. Grain traders are anxiously awaiting USDA's November crop reports Friday morning. Although the data may not be market-moving, traders are unwilling to aggressively add positions ahead of the reports. At the same time, traders continue to closely monitor the macro-economic environment. In addition to the U.S. fiscal cliff situation, which is garnering a lot of attention now that the elections are done, Europe is moving back into the headlines. European Central Bank President Mario Draghi issued a dour economic outlook for Europe yesterday and investors are watching to see if Greece can clear austerity measures needed for the next batch of bailout funding to keep the country from defaulting on sovereign debt. There's also talk Spain is leaning away from asking for emergency funding. Meanwhile, the European Central Bank left interest rates unchanged this morning, as expected.

The long and short of it: Grain traders want to focus mostly on fundamentals, but there's a lot of macro-economic "noise" that could be a distraction in the coming days/weeks.

* Brazil revises crop estimates. Conab, the supply agency of the Brazilian government slightly revised up its soybean production range, while modestly lowering the production forecast range for corn. The revisions were driven by acreage assumptions based on surveys of farmers. Conab now sees soybean production at 80.09 MMT to 82.99 MMT compared to a range of 80 MMT to 82.8 MMT last month. Conab forecasts corn production at 71.55 MMT to 72.85 MMT versus a range of 71.9 MMT to 73.2 MMT in October.

The long and short of it: While the new production forecasts are based on acreage changes, there was no mention of some intended corn acres switching to soybeans, which is a distinct possibility given corn planting delays in some areas.

* Wheat concerns heighten. Traders are growing increasingly concerned with HRW crop prospects in the Plains. While it's hard to get traders too concerned with crop prospects in the fall, with very dry conditions and little relief likely for at least the next two weeks, there's concern with crop establishment. Plus, Australian production forecasts are declining and exportable supplies in the Black Sea region are tightening. So... in addition to U.S. crop concerns, there are hopes demand for U.S. wheat will improve, which is supportive.

The long and short of it: The improving fundamental situation for wheat has been enough to keep the market from dropping, but hasn't been enough yet to trigger an upside breakout from the extended, choppy trading range.



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