Grains grind lower

A USDA report released Wednesday morning showed diminished export expectations for corn and soybeans, prompting some traders to declare that high grain prices had finally cut into foreign demand. Fifteen percent of US corn and over half of the soybeans are exported to foreign markets like China, Japan and Mexico. The cut in exports and resulting larger expected supply in US grains prompted a sell-off in corn, wheat and soybeans, dropping all three markets near two-month lows.

Weather worries continue to plague farmers, especially in the Eastern Corn Belt. As of last week, Indiana, Michigan and Ohio corn farmers had planted less than 10 percent of their corn, well behind their average pace near 50 percent. Furthermore, extensive flooding along the Mississippi River has inundated millions of acres of farmland in Tennessee, Arkansas, Mississippi and Louisiana, potentially reducing those states' production of rice, soybeans, corn and wheat.

Despite these problems, market participants are more optimistic that the United States will produce enough grain in 2011 to meet and exceed current demand levels. As of Friday midday, corn for July delivery was trading near $6.84 per bushel, July wheat was wallowing at $7.29/bu and July soybeans had slipped to $13.28/bu.

Greece drags Euro down

Problems in Greece are heating up again, prompting some traders to fear a repeat of last summer's turmoil. Greece has so far been unable to tame its rising borrowing costs and a debt that is 1.4 times larger than its gross domestic product, the value of all goods and services produced in the country in one year. Other European Union nations, especially Germany, have recently chastised Greece, suggesting that they may not be willing to continue supporting their southern neighbor.

Financial firms are growing increasingly concerned that Greece will be unable to repay its debt, which is driving Greece's costs of borrowing sharply higher. Just as banks give lower interest rates to individuals with better credit, investors demand higher interest rates from countries that they view as risky. As a result, the Greek government has to pay 15.5 percent interest on its 10-Year bonds, whereas nations like the United States, Canada and Germany must pay only 3.2 percent.

Other European nations, especially Germany and France, have much stronger economies and that has the potential to offset anxieties over the Greek debt situation, but those nations' citizens may be forced to foot the bill for a bailout, a politically unpopular idea. As of Friday midday, the European currency was worth $1.41, down over seven cents (-5 percent) in the month of May.

Opinions are solely the writer's. Alex Breitinger is commodities broker with Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He can be reached at (800) 411-3888 or indianafutures.com. This is not a solicitation of any order to buy or sell any market.