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Italian debt concerns weigh on markets

Italy’s skyrocketing interest rates has sent shockwaves through the financial and commodity markets. The Dow has had volatile trade and is down 89.38 points this week to close Thursday at 11,893.86. Oil’s surprise reduction in stocks coupled with Middle East unrest has led the market higher adding $3.16 a barrel to close today at $97.65. The dollar index is up sharply due to the Euro’s decline and gold has tacked on 90 cents an ounce finishing at $1,758.90 today. The grain markets have sold off across the board.

Wednesday’s USDA/WASDE reports were bullish for corn on paper, but the trade did not reflect this sentiment. Corn is down 10 ¼ cents on the December contract ending trade at $6.45 ½ today.  The USDA reduced expected yield to 146.7 bushels per acre, but decreased feed consumption by 100 million bushels.  Harvest is nearly complete at 87% and exports missed expectations.  Export sales were reported as 251,900 MT, which is down 59.5% from last week.

A larger than expected ending stocks revision has a very bearish overtone for soybeans. The USDA increased ending stock by 35 million bushels in Wednesday’s report adding to an already bearish technical and fundamental trade. South America’s planting season has been almost ideal for their expected record crop. These factors will continue to push beans lower and should keep export demand lackluster. Export sales were better this week, however, at 604,000 MT which is up 188% from last week.

WASDE reaffirmed a glut of wheat on the world market this year. Domestically, we did see a slight reduction in yield and production for this past season. Not a lot of support can be found for wheat lately as ample supplies, weak export demand, and a stronger dollar all weigh on the market. Winter wheat planting is nearly complete at 94% and the crop is rated 49% good to excellent. Export sales continue to be routine at 298,400 MT, down 6.8% since last week.

Italy’s growing debt concerns has kept a lid on any rally for the equities and commodities alike. A weaker Euro causes the dollar to strengthen with the effect of decreasing export demand. A friendly USDA/WASDE report from Wednesday was overshadowed by the rising concerns surrounding Italian debt. This situation will have to be monitored moving forward as will the planting season for South America

Spot soybean basis continues its climb with harvest 88% complete. Since November 1, spot basis levels have increased an average of four cents across the country. Soybean crushing facilities put pressure on this upward trend as they also increased their basis four cents. Pockets of strength in the Eastern Corn Belt were primarily fueled by premium end users in the area. In opposition to previous weeks, river terminals actually dropped their basis five cents this week as Gulf basis decreased by six cents.

Throughout harvest we have seen elevators along the major river systems boost their basis as barge rates have been unseasonably low. As of November 9, the rate for moving grain south of St. Louis all the way to the Gulf cost 43 cents per bushel. The rate this year is 20 cents per bushel less than the five year average of 63 cents per bushel. River terminals have taken advantage of these rates throughout harvest and boosted their basis in order to attract grain to move at these low rates. As of this week it looks as though these discounted barge rates were not enough to push basis levels up, as the export market was not supporting a large supply of grain.

Kansas City Wheat basis also increased this week, up an average of three cents across the growing region. Since the completion of harvest, spot HRW wheat basis has gained an average of 47 cents.Harsh weather conditions plagued the 2011 crop and produced poor supply numbers. With tighter stocks it looks as though elevators are increasing basis to encourage producers to start drawing from storage.

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