South American Supply Concerns, HRW Crop Worries Ease

February 26, 2013 12:18 AM

What Traders are Talking About:

* Soybean supply worries ease. After a strong rally last week, soybean futures are reeling as supply concerns in South America are easing. As I mentioned yesterday, port workers in Brazil have pledged to not strike through March 15. As a result, there's isn't as much threat of any significant shipping delays out of Brazil. With that said, logistical issues still exist in getting a record crop from the field to ports and onto ships, so this issue has not been completely put to bed. In Argentina, recent rains have eased crop concerns, although the Rosario Grain Exchange cut its production estimate by 5 MMT to 48 MMT yesterday.

The long and short of it: The factors that were supporting soybeans at this time last week have shifted and are now sources of pressure. It wouldn't surprise me if there are more shifts in momentum in the soybean market and old-crop futures stay highly volatile within the established, sideways trading range.

* Moisture easing HRW concerns. The weather pattern has turned much more active across the Central and Southern Plains. The resulting precip has eased crop concerns. While Members remind me that the snowfall has had very little moisture in it, and therefore, will be of limited benefit to the HRW crop, the perception is that weather conditions are improving across the Plains. As a result, crop concerns have been pushed to the back burner and wheat futures are extending the sharp price drop.

The long and short of it: Recent precip are enough to ease crop concerns -- at least until weekly crop condition ratings resume on April 1.

* 'Outside' influences are a factor. The impending across-the-board spending cuts (sequestration) and the uncertainty in Italy are having an impact across the investment world, including ag commodities. While these situations should come to a head relatively soon, they are currently hanging over markets like a wet blanket. The uncertainty is causing investors to reel in risk. While risk aversion hasn't been overly strong, there has been a drop in risk appetite since the middle of last week as witnessed by price action in the U.S. stock indices, the Continuous Commodity Index and the U.S. dollar index.

The long and short of it: The old market adage says "if in doubt, get out." That seems to be what investors are sticking with until these situations are resolved -- or at least until more is known on these fronts.


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