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Markets get bombarded-Ron and Sue Mortensen

05/12/2011 @ 3:37pm

There are several large themes affecting the grain markets this week--a large macro-economic theme of the end of QE2/dollar buying/commodity selling/economic outlook fears, a USDA report that seemed to say “don’t worry, be happy” and a small group of people who are beginning to voice concerns regarding crop acreage and weather.

The recent round of commodity selling was perhaps started by silver, but now has spread to many other commodities. The decision by the European Central Bank a few weeks ago to not raise interest rates did not help.  Many market participants began asking questions regarding the long term health of the economy. The resurgent discussion about Greek debt and the weakening of the euro did not help.  Rising margin requirements for several volatile commodities seemed to be the last straw.  

Yesterday’s USDA May crop report and supply/demand tables only seemed to re-invigorate the selling of ag commodities. Most understand the supply/demand situation will look different in the future, but for right now, the numbers in the USDA report look pretty darn comfortable and traders found it easy to be bearish.    

There is also a feeling that the USDA could still lower corn and soybean exports further.  This most price sensitive of all the demand categories has been suffering since the spring rally. For soybeans especially, there is a large supply of competitive supplies in Brazil and Argentina. Corn is also suffering from exportable supplies of feed wheat.     

Speaking of exports, there was chatter in the corn market today that China had bought 1-2 million metric tons of corn. There was no confirmation, but corn to China does pencil if the VAT tax is waived. The last time US prices were competitive, the Chinese bought 1 million metric tons. South Korea also bought substantial amounts of corn this week. This was a change in behavior, as recently they had been purchasing feed wheat.  

The flooding and weather forecast have produced the final big topic of discussion--is the total acreage pie shrinking? And how much of which crop is being reduced? The Monday planting progress will be key, as the calendar is coming up to several crucial planting dates. Concerns center along the Mississippi River (corn, cotton and rice planting), but there are also several states in the eastern and southern Corn Belt where progress lags (Indiana, Ohio, Kentucky, etc). Then there are northern states (North and South Dakota, Minnesota) where rain, flooding and cool temperatures have combined to raise concerns about spring wheat, corn and soybean planting.  This is a moving target, but one that bears watching, as some commodities, especially corn, can not stand to have acreage reduced by much.   

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