Weather Watch Intensifies In Grain and Soy Markets

January 22, 2013 12:02 AM

What Traders are Talking About:

* Weather watch intensifies. Developing dryness in Argentina and southern Brazil is gaining more attention in the soybean market (and to a lesser extent in the corn market). While South America will almost certainly grow a record soybean crop this year, late-season dryness could keep the crop from being as big as once thought. Forecasts call for a cold front to bring some temporary relief to areas of Argentina this week, but the 6- to 10-day forecast shows a return of heat and dryness. The outlook calls for rains in northern production areas of central Brazil, but conditions are expected to be dry through Parana and Rio Grande do Sul in southern Brazil. Meanwhile, wheat traders are concerned with persistent dryness in the Central and Southern U.S. Plains.

The long and short of it: Weather/crop concerns are currently the primary sources of fundamental support for grain and soy futures.

* Russia may lift grain import duty. Through the first half of the 2012-13 marketing year (July-June), Russia aggressively exported grain. But those aggressive exports have left domestic supplies tight, especially is some of the "outer" regions of the country. As a result, Russian officials are now reportedly considering a proposal to lift the 5% duty on grain imports. A spokesperson told Reuters government officials will assess sales of intervention stocks before making a decision on the grain import duty. Meanwhile, the country's deputy prime minister told Reuters he does not favor lifting the import tax.

The long and short of it: If Russia lifts the grain import duty it would be a significant shift in philosophy and would be price-supportive for the wheat market.

* Japan steps up efforts to boost economy. The Bank of Japan announced aggressive monetary easing and more surprisingly that it's raising its inflation target to 2%. The central bank said that from 2014 it would switch to open-ended bond purchases -- 13 trillion yen ($144.77 billion) each month. This is Japan's strongest stance yet to boost its stagnant economy.

The long and short of it: Global markets responded positively to Japan's bold moves as it's yet another sign global central banks are going to take extraordinary measures to boost their economies.


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