What Traders are Talking About:
* Early Brazilian harvest underway. Harvesting of early maturing soybeans in Mato Grosso, Brazil, started last week. According to our South American consult, Dr. Michael Cordonnier, early yield results are similar to year-ago, but yields are expected to increase as harvest progresses as conditions are broadly favorable across Brazil aside from pockets of developing dryness in northern production areas of central Brazil. While a drier pattern would be a concern for later-maturing soybeans, it would be more of an issue for the safrinha (second season) corn that will be planted after soybeans are harvested.
The long and short of it: The start of harvest in Brazil is weighing on the market, especially with all signs pointing toward record production in the country -- and for South America as a whole.
* Chinese demand for U.S. beans likely to ease. With a record Brazilian crop looking like more of a sure thing, it wouldn't be a surprise to see China cancel some U.S. soybean purchases. Some of that already happened in December, but more cancellations are likely. Chinese buyers bought insurance in case record Brazilian production didn't pan out. They now no longer need all of that insurance and will likely cancel some of it (at a fee) with the intent of booking cheaper new-crop Brazilian supplies. But while early Brazilian harvest is underway, it's still weeks before new-crop supplies will be in exportable position. With soybean prices falling, it wouldn't be surprising to see China make some additional purchases of U.S. beans.
The long and short of it: Chinese demand will tell the market when prices have fallen far enough. There aren't signs that's the case yet.
* Fiscal cliff averted, but more battles ahead. President Obama late Wednesday signed the fiscal cliff package. But the intense debate between Republicans and the White House (and Democrats) during the fiscal cliff talks could be just a precursor of what's to come in the next two months as the two sides battle over the debt ceiling and spending cuts. Some fear, that debate could be even stronger and have more impact on markets.
The long and short of it: While there's euphoria among equity traders over the tax package, the greater issue for markets is the threat of a credit rating downgrade and the U.S. defaulting if agreement on the debt ceiling and spending cuts can't be worked out.
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