HOLIDAY-shortened weeks typically see thin trading, opening the possibility for wide swings, and the two-week stretch including Christmas and New Year's Day is generally the most significant opportunity for such volatility.
Week 1 of this two-week lull in trading activity, fortunately, yielded fairly muted price changes over the course of the week, with outside macroeconomic factors generally giving traders the most reason to move the needle last week.
Overhanging the markets is the ongoing debt debacle known as the "fiscal cliff." With very few days left in the year, most traders seemed to assume that no deal would get done in 2012, and most Americans appear poised for another recession regardless.
According to polling conducted Dec. 20-21 by pollster Scott Rasmussen, 70% of likely voters now think a recession is inevitable without action on the fiscal cliff. Even if a deal materializes in last-ditch talks between President Barack Obama and Speaker of the House John Boehner (R., Ohio), 54% think a recession is coming anyhow.
Congressional leaders were slated to meet with White House officials again last Friday in a final round of budget talks before the Jan. 1 deadline. House majority leader Eric Cantor (R., Va.) told House members to plan on working through Jan. 2, the final day before new members are sworn in.
Aside from broad worries over the cliff, weather- and export-related concerns continued to provide major market-moving news. Sparked by the worst U.S. drought in 56 years, dangerously low water levels on the Mississippi River continue to plague the grain and shipping industries, with both preparing for a potential stoppage of commercial traffic on the river near Thebes, Ill., this week.
Add to those woes the prospect for major dock worker strikes on the East and Gulf coasts and at grain terminals in Washington and Oregon, and it's easy to understand why U.S. exporters were jittery over the holidays.
This confluence of critical challenges to the nation's export infrastructure will continue to threaten U.S. competitiveness in the global market in the early days of 2013.
On the other hand, weather continues to underpin the grain and oilseed markets. With U.S. corn ending stocks at their lowest level since 1995 and soybean ending stocks at their lowest in a decade, the market is particularly susceptible to any supply-side shock, namely, at this point, anything that might disrupt South American production.
Two weather events in South America provided a glimpse into what such a shock might look like. Christmas Day rainstorms in Argentina delayed corn and soybean planting, which was already behind schedule. Local consultancies said the country is at least 20 percentage points off last year's pace at this point.
Argentina got as much as 4 in. of rain over two days last week, exacerbating unusually wet conditions that already have prevented farmers from getting a crop in the ground. Traders generally assume that when farmers do get on track, corn acreage will give way to additional soybean seeding.
In a weekly crop report, the Buenos Aires Grains Exchange said last week it still expects Argentina's soybean planting area to hit 19.7 million hectares despite the rains.
Meanwhile, strong winds and rains damaged the largest grain terminal in Brazil, although officials said the damage to the Paranagua port facility did not slow exports. Last Wednesday's storm-necessitated repairs primarily affected storage facilities that were already shut down for maintenance, so grain supplies were not disrupted; officials said repairs would be completed in time for harvest.
South American production will be critical to filling the gap between drought-shortened U.S. supplies and global demand -- demand that does not appear to be slowing.
In its latest forecast of China's soybean imports, research firm Oil World said it anticipates growth of 4.2% for the 2012-13 marketing year, but it does not expect the U.S. share of those imports to change much.
Its latest forecast is for China to purchase 61.7 million metric tons of soybeans, up from 59.2 mmt this year, and of that total, 23 mmt would come from the U.S., nearly steady with 23.1 mmt in 2011-12.
With weather-related supply shocks and ongoing uncertainty regarding the global economic environment, University of Illinois agricultural economist Darrel Good said crop prices will likely remain very volatile in 2013.
"However, a transition to lower prices is anticipated as production rebounds," he told farmers during the Illinois Farm Economics Summit earlier this month. "The extent of the price decline will depend heavily on the outcome of the 2013 crops."
A drought-withered corn crop and resulting high prices in 2012 (Figures 1-2) should result in a "substantial decline in consumption." If South American production lives up to expectations and the U.S. crop returns to trend-line yields, Good said the resulting glut of corn would allow for a "substantial" rebuilding of inventories.
"Prices are expected to decline from the record-high levels of 2012 as production rebounds," he explained. "An average farm price above $7/bu. is expected for the 2012-13 marketing year, but the average for the 2013-14 marketing year could be in the $4.75-5.50/bu. range."
Similarly, for soybeans, production is expected to rebound in 2013 both in the U.S. and globally, with the U.S. Department of Agriculture currently expecting a record South American harvest.
Good said if those assumptions hold, along with a return to trend-line soybean yields in the U.S., an average farm price of $14.50/bu. is expected for the current marketing year, followed by an average price of $11-12 in 2013-14.
Grain and oilseed prices firmed heading into the Christmas break and faltered thereafter. Led by soybeans, prices fluctuated anywhere from 10 cents to 30 cents in the two sessions prior to the holiday, but most of those gains were squandered in the two sessions immediately after the holiday.
Both corn and soybean contracts traded lightly last Friday, with corn showing a smaller volume and a narrower range at mid-session. Markets will be closed again Jan. 1 for New Year's Day.
While corn and wheat exports have been disappointing in recent weeks, Farm Futures market analyst Paul Burgener noted last Thursday that both grains should start looking more attractive to overseas customers.
"The corn market has given ground for the past two weeks, making it a relative bargain for this year," he said. "Lower prices look to be a result of demand rationing, but these tight supplies will come to the forefront of the market in late spring and early summer as the Argentine crop appears to be shorter than expected. There are still good chances for $8 corn around planting time, and the continued drought could be even more bullish (to corn prices)."
Soybeans continue to outpace USDA projections for both export and crush demand, although traders in both pits seemed content selling positions to close the year and waiting until next Friday's USDA reports -- including the "Crop Production," "World Agricultural Supply & Demand Estimates" and "Quarterly Grain Stocks" reports -- before making a bold move in either direction.
Merchandisers kept an eye on the Mississippi River and dock worker strike situations last week due to concerns that both could disrupt the movement of product to start 2013.
Renderers may have found a bottom in the meat and bone meal markets, but if the export trade is disrupted due to the pending labor strike, additional containers of product could be put back on the market, pushing prices lower.
Some non-ruminant meals firmed last week as the holidays and winter weather conditions slowed slaughter paces somewhat.
While poultry meals appreciated in December, feather meal may be getting overpriced relative to meat and bone meal, with nearly a $200-per-ton spread between the products at this point.
In general, ingredient prices saw a modest holiday bounce, but after Jan. 1, all bets are off.