What Traders are Talking About:
* USDA reports fail to spark buying interest. USDA's December Supply & Demand Report featured a bigger-than-expected reduction to 2012-13 soybean ending stocks, while corn carryover was unchanged and wheat carryover increased from last month. If there was a surprise in USDA's balance sheet projections, it's that corn exports weren't lowered and soybean exports weren't raised. The current paces for both suggest those changes could very well have been made. Instead, USDA chose to "punt," giving them more time to assess the export situation for both commodities. On wheat, USDA reduced projected exports 50 million bu., reflecting the slow export pace and strong global competition. The surprise, however, is that the competition should decline the second half of 2012-13 as Black Sea supplies tighten and yet USDA still lowered its carryover projection. USDA's only crop adjustment this month was for cotton. The 2012 cotton crop was lowered 190,000 bales from November. USDA also increased projected cotton use (mostly exports) to tighten carryover by 400,000 bales from last month. Still, cotton carryover is plentiful -- domestically and globally.
The long and short of it: Soybean futures got an initial boost from USDA's report data, which also initially supported corn and wheat. But the buying interest quickly faded and futures dropped to pre-report (or lower) levels. The lack of a bullish response to friendly data by soybean futures is a sign that the upside is tapped out for now.
* Argentina the trouble spot in South America. Central Argentina remains hampered by excessive moisture, causing wheat losses and delaying corn and soybean planting. The major concern is that the area impacted is some of the best farm ground in Argentina. Argentina's government has already reportedly decided to limit 2012-13 wheat exports to 4.5 MMT, down 25% from 2011-12. Contacts in the country continue to say that due to flooding, some of the country's prime corn and soybean acres won't be planted to anything this year. Meanwhile in Brazil, conditions are relatively favorable. Southern Brazil has gotten some recent rains and more are in the seven-day forecast. Mato Grosso, where conditions have been generally favorable so far is starting to turn a little dry in some areas, but it's not a major concern at this time.
The long and short of it: South America is still in line for record soybean production this year, but estimates are trending down, with the primary concern (for now) in Argentina.
* Macros still matter. Grain traders have done a relatively good job of brushing aside macro-economics, but they are keeping an eye on the global economic situation. In the U.S., fiscal cliff talks continue, but it's gotten relatively quiet on that front, which insiders say is a good thing. That indicates there's more working and less "face time" in front of the media. Also, the Fed starts its two-day Federal Open Market Committee meeting today. Of importance will be what the Fed decides to do with Operation Twist, which is set to expire at the end of the year. Overseas, Europe remains the concern amid ongoing struggles throughout the euro-zone. But there is some glimmer of hope as German investor confidence rose much more than expected, with the ZEW index showing its first positive reading since May. Meanwhile, China's economy continues to show signs of improvement.
The long and short of it: The positives and negatives seem to be offsetting each other on the macro-economic front for now. The fiscal cliff situation is going to be the real tone-setter macro-economically through year-end.
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