Wetter South American Forecast, Macro Concerns Threaten Grain Rally

January 5, 2012 12:13 AM

What Traders are Talking About:

* Increasing rain chances in Argentina, Brazil next week. Forecast models continue to trend toward increasing rainfall chances across dry areas of Argentina and southern Brazil next week. In Argentina, rains are now expected Monday through Wednesday in the key production areas. In Brazil, the southern states of Parana and Rio Grande do Sul are expected to see a significant rain event by late next week -- after it moves out of Argentina. Above-normal temps are expected through the forecast window in Argentina and southern Brazil, so the development of forecast rains is crucial if crops are going to see any relief.

The long and short of it: The increasing rain chances are price-negative for corn and beans after recent gains tied to crop stress in Argentina and southern Brazil.

* Macros move back into focus. Attention shifted away from Europe and the macro-economic situation through the holidays, but that focus is rebuilding amid ongoing sovereign debt concerns in the region. While there was solid demand at a French auction for long-dated government bonds, overnight deposits at the European Central Bank hit an all-time high, signaling banks are reluctant to lend to each other, and German retail sales data showed a fall in November versus expectations for a 0.5% increase.

The long and short of it: European concerns are driving the euro lower and the dollar higher, which is putting more emphasis on macro-economics. And that threatens the recent rallies in grain and soy futures.


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