Reaction To USDA Reports Could Be Start of 'February Break'

February 10, 2012 12:14 AM

What Traders are Talking About:

* Report reaction very telling. In my commentary following yesterday's USDA reports I said, "The reaction to USDA's 'boring' reports will be a good gauge of overall attitudes." Well... price action yesterday and in the overnight session signals attitudes are swinging to bears' side again. Chart patterns look very similar to what they did in November and January when price trends reversed following USDA's report data and led to sharp downturns in prices. Seasonally, this could be the start of the anticipated "February break."

The long and short of it: If this is a repeat of what happened in November and January, corn can expect a price drop of 50-plus cents, soybeans $1-plus and wheat 60-plus cents.

* Warning sign of global economic slowdown. Chinese imports fell 15.3% while exports declined 0.5% last month compared to January 2011 -- both sharply below expectations. The import figure was the lowest since August 2009 and the export number was the lowest since November 2009. Most of the decline was attributed by Chinese officials to the fact the Lunar New Year market closure came in January this year and was in February last year, but the drastic slowdown in trade numbers -- even with the holiday difference -- is a concern. The head of China's Customs Administration said he expects a sharp rise in February trade numbers.

The long and short of it: The sharp drop in Chinese trade numbers last month is a warning sign the global economic slowdown may be stronger than many expect.

* Wheat purchases increase. There has been a sharp pickup in global wheat trade this week, led by a flurry of activity from buyers in the Middle East -- Algeria, Iraq, Iran, Syria Tunisia, Libya and Oman. Spain also surprisingly bought 200,000 MT of U.S. wheat earlier this week. And South Korea, Taiwan and Japan have also bought wheat the past several days. While the U.S. garnered very little of the business aside from Spain, Taiwan and part of Japan's regular weekly tender, it's a positive sign to see global wheat trade pick up.

The long and short of it: Part of the increase in global wheat trade is due to increased concerns about availability of supplies from the Black Sea region as Russia and Ukraine have dominated the global market since last August. In addition to winterkill concerns in the region, the Black Sea has frozen over off the coast of Odessa --an extremely rare event. The last time that happened was 1977.


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