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Despite positive demand news, the soybean market's bounce yesterday and losses again today are indicative of a market in no hurry to rally, especially if weather remains largely benign in South America. While the soybean market has been able to take out the harvest lows this week, the corn market remains trapped between $7.05 and $7.55 levels in Dec 12 corn as the key directional parameters for assessing the next possible trend in the corn market. It remains to be seen how the USDA will reconcile animal number down 1.5% with feed usage down 9% this year. With both global and US 2012/13 ending corn/soybean stocks expected to be tight followed by much more ample stocks next year, provided the weather cooperates, fund traders are obviously trading the "short crop/long tail" theory, at least for now and especially with the uncertainty of the "fiscal cliff" hanging over the market.
Extremely low wheat stocks in the European Union and across the world will mean prices of the grain will continue to rise in Europe, Strategie Grains said Thursday, as it trimmed the bloc's estimated 2012-13 production by 0.2mmt, to 122.7mmt. The influential analyst group said it had lowered output estimates for the UK and Finland, as well as reduced harvest forecasts for Argentina and Australia, where winter
wheat development has been hit by drought, and cut its outlook for the US and southern Russia. As a result, world wheat stocks at the end of 2012-13 are seen sharply down on the previous year at 159mmt, or 23% of annual demand, while soft wheat stocks held in the main exporting countries will dip to the dangerously low level of 19%, compared with 20% of annual demand at the end of 2007-08. Extremely tight world markets for wheat, corn and soybeans should continue to create upward pressure for EU wheat prices, Strategie Grains said, which should increase significantly once export availability in the Black Sea countries runs dry in early 2013.
Here is something you should be aware that can surprise the grain trade in a few weeks as reported by Jim Gerlock. The possibility that could have huge implications on grain traders is a possible default on Argentine debt in the very near future. The country is embroiled in a long legal battle with investors (including hedge fund manager Paul Singer) who bought Argentine sovereign debt in 2001, the last time the country's economy collapsed. Since then, investors have been given two chances (in 2005 and 2010) to restructure that debt and take a haircut. Singer, who is owed $1.3 billion, refused. Instead, he and others have taken the country to court (and impounded one of Argentina's naval vessels) for the full amount they're owed. Argentina says it will pay investors who restructured, not the "vulture" investors (exchange bondholders) who did not. Last month, Judge Thomas Griesa ruled that Argentina cannot do that and must honor their payment schedule in December. On Dec. 2, Argentina is scheduled to make a $42 million interest payment to some bondholders who exchanged defaulted sovereign debt for new bonds in one of the country's restructurings in 2005 and 2010. Exchange bondholders are due another $3 billion on Dec. 15 and between $100 and $200 million on Dec. 31. Now here's what could tip the scale toward an Argentine credit event.
So far, Judge Thomas Griesa has granted Argentina a stay so it doesn't have to pay Singer and co. the full amount they're owed during Court proceedings. What Griesa really wants is a signed affidavit that the country will pay bondholders in December. There's a chance President Cristina Fernandez de Kirchner won't sign such a document since she's made this issue an "us vs. the vultures" political rallying cry. And as Citi forecasted, "If no affidavit is signed by Argentina, it could be game over, with the stay lifted even before the payment on the other bond holders who accepted the haircut. But there's another possibility that could trigger a lifting of the stay as well. Tuesday, the country asked for a re-hearing of this case before a three Judge panel in New York. If it gets that, it could also maintain the stay through the appeals process and this story will go on. However, Singer's fund, Elliott Capital, has asked the Court not to extend the stay through the appeals process. And if Elliott gets what it wants and the stay is lifted, that's another "game over" situation. Meanwhile, the situation in Argentina is getting dire. It's getting increasingly expensive for the country to issue debt. The cost to insure Argentine debt against non-payment for one year soared 4,181 basis points, or 41.81 percentage points. The implied probability of default within 12 months has more than quadrupled from less than 10 percent before Oct. 26, based on the assumption investors will recover 25 percent of the par value of their bonds.
This year, Argentina has seen the biggest protests since the regime of Juan Peron in the 1970s. Cristina Fernandez de Kirchner's popularity is dwindling, and politicians are struggling to control capital flight. If Argentina does default on their debt, it could affect their grain exports dramatically as lines of credit could grind to a halt and credit in general becomes difficult to attain. With Argentina the world's largest exporter of soybean meal and oil, such an event could quickly push premiums back into global soybean prices regardless of what kind of crop they grow.
US Dollar Daily Chart
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11-12-12
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NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.
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