UPDATE: More Chinese Corn Buys?

April 27, 2012 02:54 AM

What Traders are Talking About:

* More chatter of Chinese corn buys. Old-crop corn futures led a price rally into the close Thursday amid talk of additional Chinese demand. This morning, USDA confirmed 120,000 MT of corn sales to China for 2011-12 and 1.44 MMT of corn sales to an unknown destination (China?) for 2012-13. For the week, "unknown" has purchased 2.46 MMT of U.S. corn and China has bought 382,500 MT of U.S. corn -- some old-crop, some new-crop. Also of note, cash market sources reported exporters pulled offers to sell corn for export for April, June and July. That certainly suggests exporters don't have enough corn in position to export any more than has already been booked. As a result, corn basis is likely to firm as exporters look to free up more corn.

The long and short of it: The cash market remains strong, but so far, strength in corn futures has been limited. But with China and "unknown" actively buying U.S. corn, strength in the cash market should transition into futures.

* Economic growth slows more than expected. First quarter GDP came in at a 2.2% annual rate, according to the Commerce Department. That's lower than expectations of 2.5% and down from 3.0% in the fourth quarter of last year. On a positive note, consumer spending rose at a 2.9% rate -- the fastest pace since the fourth quarter of 2010. That was up from a 2.1% rise in the fourth quarter of last year.

The long and short of it: Markets are reacting negatively to the disappointing GDP data, although the positive consumer spending number is taking some of the sting out. But losses in the dollar should be supportive for commodities.

* China Q2 trade growth to stabilize at 'low level.' In its regular spring assessment of business conditions, China's Ministry of Commerce says the country's trade growth should stabilize in the second quarter, but at a "low level." The ministry cautioned that tough time may lie ahead amid economic struggles in the euro-zone and tepid U.S. growth -- China's top two trading partners -- and domestic price pressures. "There are some favorable factors to ensure steady growth in trade, but we should also note that the year of 2012 may be a quite challenging one for China's trade," the ministry said. China has set a 10% growth rate for exports and imports in 2012. The ministry says it is still confident in hitting those targets even though both were missed in March.

The long and short of it: Key for China because of it's reliance on exports to drive economic growth, is the U.S. and euro-zone. While the U.S. is slowly growing, there are major ongoing concerns in Europe.

* Spain downgraded. Standard & Poor's cut its credit rating for Spain two notches to BBB-plus amid budget deficit worries and ailing banks, and warned additional downgrades are possible if strong actions weren't taken by the country and the European Union. Moody's and Fitch still give Spain an A rating, but have negative outlooks.

The long and short of it: The downgrade to Spain's rating initially pressured the euro and pushed the dollar higher, but a favorable Italian bond auction has eased euro-zone concerns enough to pull the dollar back to near unchanged this morning.


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