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The rumor mill rules

10/10/2013 @ 3:30pm

The government shutdown continues to put a strange spin on trading this week. A continuous flow of information from the USDA and other government sources stabilizes the markets to some extent. Without hard data, rumors receive more attention than usual. 

For example, many think China has been using this period to fly under the radar to purchase corn. A private Chinese company said it had purchased 420,000 metric tons. Without daily and weekly export reports, confirmation is lacking. 

Purchases should not be a surprise — analysts and the USDA have China importing 7 mmt (million metric tons) in the crop year (not necessarily all from the U.S.). Foreign corn is cheaper than Chinese corn, adding to the discussion. They have not bought that entire 7 mmt yet. A truly bullish situation would evolve from larger and larger amounts of confirmed sales — this has not happened.  

The market does know the Chinese government has not changed their import quotas for 2014, so they can buy 7.2 mmt per year (a mixture of private and government purchases). The Chinese continue to buy sorghum and DDGs, commodities with no import quotas. These U.S. commodities are also substantially cheaper than domestic crops, making the cheaper imports an obvious benefit to Chinese livestock and poultry feeders.

Also without the usual sources to check information, a story regarding the EPA lowering the RFS requirements for 2014 is gaining traction. The EPA was to release its 2014 numbers by the end of September, but then postponed it to October. Now there is a rumor of a 13.0 billion-gallon mandate for corn-based ethanol in 2014, down from 14.4 billion gallons. This could simply be a trial balloon. 

In the background continue to be stronger than expected yield reports, especially for corn. Yes, there are very disappointing yields, but these would seem to be from a smaller area than previously thought. Many have switched to beans, after doing some early corn. What sort of yield will come out of the late-planted (and there are many) acres?

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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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