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The markets are adrift

11/15/2012 @ 3:13pm

Last week’s USDA reports produced the largest price reaction for soybeans. The crop size of 2.971 billion bushels was definitely larger than expected, but the true surprise came with the USDA’s estimate of ending stocks. With that number pegged at 140 million bushels vs. 130 million last month, the market believes that price has adequately rationed demand. 


Amazing what can happen with a 10 million-bushel adjustment! Of course, this is just the USDA’s best estimate, and it may already be called into question. The NOPA crush report, released Wednesday, showed a larger soybean crush than expected. If this continues even a month or two more, the USDA’s crush number will appear too low. 


Early crush data suggests a low meal yield and a corresponding high oil yield. This is not a good situation given the level of meal demand. Oil has been the by-product of the crush for some time, and it doesn’t look like that situation is changing. However, it has been interesting to see unknown buying soybean oil in the past two morning’s export sales announcements.


There are two other big topics affecting the markets. First, casting doom and gloom is the realization that there is no easy fix to the fiscal cliff. The political bickering makes traders uncomfortable because it increases uncertainty in the near-term. This causes market participants to pull in their horns and wait to see what will happen. Secondly, it is a long time until the January reports. It's hard for traders to wait two months for another set of data. This also causes some to just say “I’m done trading until next year.” True, there is always data -- weekly exports, ethanol production, cattle on feed (due out Friday), etc., but it is not the kind of data that triggers volatility.   


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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