"Macro" Events Set the Tone in the Grains
Feb 21, 2012
There have been several significant "Macro" type events over the weekend that could set the tone for trading early this week, I have listed them in no specific order below:
Euro zone finance ministers strike deal on second Greek debt package. Greece’s cabinet accepts a final set of austerity measures over the weekend. Greece will now finally be granted the new $130 billion in bailouts, and it could eliminate the fear of a "default" for the remainder of 2012. The deal should give Greece a debt-to-GDP ratio of just over 120% by 2020. In addition Greek bondholders will take a final "haircut" of more than 53%. Some already projecting the $130 billion will not be near enough and they will need closer to $245 billion before it is all said and done. To further complicate issues the German finance ministry seemed to be actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks.
Massive protest in Spain this weekend in regards to labor reforms and deep spending cuts. I suspect a bailout for Spain will be the next major "headline." Many are calling this one of the largest protests since the economic crisis in Europe has begun. It was estimated early Sunday that a half-million people joined in the protest. The people are simply tired of the tax hikes and spending cuts. From what I can gather, the new government came in back in December and has already increased taxes and made close to $20 billion in across the board spending cuts. The problem is the new government still needs to raise taxes even higher and make at least another $50 billion in spending cuts just in order to meet their deficit targets. We need to remember, Spain has the highest "unemployment rate" in the modern developed world at 23%, and a youth "unemployment rate" of close to 50%. This place is in big trouble and in my opinion is ripe for some type of massive political melt-down.
Iran announced they would be halting the sale of their crude oil to all British and French companies upping the stakes in the geo-political crude oil game. In addition, there are confirmed reports that an Iranian destroyer and a supply ship have passed through Egypt's Suez Canal into the Mediterranean Sea, allegedly heading to the Syrian coast. There is also now some talk amongst the world's elite that as Iran is forced to move towards some type of "non-dollar-based" international bartering system that the long standing power of the US dollar may soon be in jeopardy. We know China as well as several other nations would love to see the world move away from a US dollar dominated marketplace, as more countries begin to "barter" with Iran for gold and crude oil the US dollar may become less of a leader.
China cuts banks' reserve requirement ratios in effort to spur economic growth. At first glance the market will digest the news as "bullish," but smart money seems to be concerned about the "defensive" nature and monetary stance China has had to take as of late. With exports looking grim and rising domestic inflation China may soon find themselves caught between a rock and a hard place. Chinese policy makers certainly seem concerned about a possible deeper slowdown in domestic growth. I have been tracking their so called "housing bubble," the most recent data shows home prices during the month of January fell in 47 of their 70 major cities. In addition I have heard recents reports from Volkswagen, Europe’s largest carmaker, that new vehicle sales in China, the company’s biggest market, fell by almost 5% last month. The market should be happy to see China taking the necessary steps to hopefully avoid some type of economic melt-down, but for the bears they will argue this is even further confirmation of the slowdown.
As you can see, cards in the "outside" markets have once again been reshuffled. With the "Greek Deal" now behind us the trade is left to focus on the continued slowing global economies and rising crude oil prices. The "outsides" seem confused to say the least. Will Europe continue to spiral? Will the Chinese be able to turn it back around? Will tensions in the Middle East push crude to new all-time highs and further setbacks in global growth?
Most grain and soy traders will not just be watching global weather this week, but they will also be eagerly awaiting information rolled out by the USDA in their Annual Outlook meeting scheduled for Thursday and Friday. The data should give traders a more defined starting point for 2012 US crop production. I have heard "Supply & Demand" numbers for 2012/13 will be released Friday morning before the open.
Cash Corn continues to support the market, but obviously the trade is eager to get a glimpse of this week's USDA numbers. Most in the trade seem to be thinking the USDA will bump planted corn acres north of 94 million, and estimating a trend-line type yield of around 162 bushels per acre, with a carryover of at least 1.5 billion bushels. If the numbers come in less than anticipated, I would suspect traders will immediately start to add more premium to the Dec 12 corn contract. Any type of significant rally may be an excellent opportunity to make a few more new crop sales.
I should point out that respected global Ag lender "Rabobank" is now thinking US corn prices have more room to the upside. I heard they are projecting a yield of just 156 bushels per acre, on only 93.5 million acres. It seems their analysts are thinking corn prices will average about $6.10 per bushel in the 4th quarter of this year. They are not so bullish on wheat however, thinking new crop prices will struggle to stay above $6.00. They seem to be thinking soybean prices will peak in the April, May June time frame then fall back in the later half of 2012.
Global Soybean demand continues to look towards US supplies as a solution to South American setbacks and logistical constraints. With the cash basis remaining firm and "fund" interest continuing to rise, the market seems to have the magic $13 level well within its sights. My only fear is that many respectable sources in the industry as of late have estimated "fewer" soybean acres will be planted in 2012. Some seem to be thinking we could loose a million soy acres, going from 75 million planted last year down to around 74 million this year. I am NOT on the same page with these estimates and I am fearful the USDA may not be either. I personally believe we will plant 75-76 million soybean acres. If the USDA ends up being on a similar page, "new" crop soybean balance sheets may need to be quickly readjusted. In any event, more acres will mean supplies may not be as tight as some in the industry now anticipate. Be careful heading into Friday's USDA news aggressively long soy, I believe the short-term risk is to the downside following the release of the numbers. I don't see a lot of potential bullish soy news coming out of the USDA data.
US Wheat continues to remain competitive and actually attracted more global interest this weekend as reports surfaced that Saudi Arabia purchased 330,000 tons of Australian, Canadian, EU and US wheat at a price of $320.44 per metric ton. The problem is we are still sitting on massive global supplies. Obviously all eyes will now start to focus on US and Canadian growing conditions. I would suspect wheat prices will remain shackled to corn as it provides end users and importers with an extremely viable feed alternative. However, because "weather" is still a major concern I doubt the wheat market will suffer much of a major set-back in the days ahead.
As for today's trade, there was some "buy-the-rumor/sell-the-fact" type of selling in the outside markets that seemed to be the theme and added some headwinds today.
Just wanted to tell everybody about our Grain Marketing Seminar we are having at the end of this week, the 24th, here in Kansas City, MO. It's not too late to get signed-up, we have a few seats left! You can come and hear me give my Outlook on crop prices for 2012 as well as hear some of the biggest names in the US Grain trade, Global Grain analysis, US ethanol industry, and more.
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