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Is it a 'new year?'

The New Year looks suspiciously like the old year. At least it feels the same to traders and watchers of the grains and soy complex futures markets. A bullish surprise yesterday (the Fiscal Cliff solution) met with strong selling. The markets finished sharply lower. Today, there was more two-sided trade, but still the markets were lower at the 2 p.m. close.  

There are a few wrinkles to start 2013. First, the fiscal-cliff legislation contained the reinstatement of the biodiesel tax credit (retroactive for 2012 and then also for 2013).  This makes it more likely biodiesel will be used to fulfill obligated parties’ advanced biofuel requirements. If more biodiesel is used, then less imported sugarcane ethanol is required. This could help the domestic ethanol producers and domestic corn demand.

Next week, there will also be index rebalancing. This yearly phenomenon means commodity index funds will sell some futures contracts and buy others, to add diversification and to increase their exposure to underperforming commodities. In the ag markets, funds will sell Chicago wheat, buy Kansas City wheat, sell soybeans, buy soybean meal, and sell soybean oil. They might also be small sellers of corn.

The New Year’s Day holiday created shifts in the rhythm of weekly reports that the market digests. So tomorrow will be the weekly export sales report and the weekly EIA data on ethanol production and stocks.

Tomorrow also starts the season of the prereport estimates. A leading private firm will issue numbers during morning market hours. Remember, there will be a total of three reports issued on Friday, January 11. These are the Grain Stocks report, the Crop Production report, and the WASDE (supply/demand tables). The new time for the reports will be 11 a.m. CST.

The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

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