Will The Fed Deliver?

September 13, 2012 01:05 AM

What Traders are Talking About:

* All eyes on the Fed, Bernanke. The Federal Reserve and its Chairman Ben Bernanke are in the crosshairs today as the central bank decides whether to announce a third round of quantitative easing. While there are some who believe the Fed will wait, the majority feel QE3 will be announced either following the conclusion of the Federal Open Market Committee meeting or during Bernanke's quarterly press conference. But the Fed has historically avoided making moves ahead of presidential elections. If the Fed breaks it's historical stance, it would be a sign economic conditions, or at least concerns with the economy, are worse than believed.

The long and short of it: With QE3 already somewhat factored into markets, the investment world is set up for disappointment even if the new stimulus is announced as the actual event rarely lives up to the hype. And if the Fed keeps its powder dry, there could be a sharp negative reaction.

* Corn market continues to correct. USDA's September corn crop estimate was reduced less than expected while both the old-crop carryover estimate and the new-crop ending stocks projection were higher than anticipated. This contributed yesterday to the continued pullback in corn futures from the historic highs posted earlier this summer. Not only are futures sliding on the pullback, but traders are also unwinding bull spreads as there has been some demand destruction. With that said, however, corn fundamentals are still bullish and there's likely to be strong end-user buying under the market as supplies are tight. The key question: "How far must futures fall to attract fresh end-user buying?"

The long and short of it: The bloom has come off the rose in the corn market for now, but I wouldn't be surprised if corn futures make at least one more push to the upside once harvest pressure eases.

* Bearish Grain Stocks Report likely. In commentary accompanying the Supply & Demand tables yesterday, USDA indicated nearly 1.2 billion bu. of 2012-crop corn was harvested as of Sept. 1. While USDA attempts to avoid old-crop/new-crop commingling in its survey work, some of that total will be counted in Sept. 1 corn stocks in the Quarterly Grain Stocks Report on Sept. 28. Remember, Sept. 1 stocks in that report will be final 2011-12 carryover (2012-13 beginning stocks) in the October Supply & Demand Report. Increased beginning stocks would give USDA a little more "cushion" on the supply side for the 2012-13 marketing year.

The long and short of it: A bearish Quarterly Grain Stocks Report could cement a major top in the corn market or it could trigger the last flush of long positions before traders start flowing money into the long side of the market again. Traders' attitudes coming out of that report will be key to short-term and possibly longer-term price action.



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