China shook up world commodity markets today with its Central Bank raising interest rates for the first time since mid August. This had an immediate and bearish impact on all commodity prices: from Malaysian palm oil to crude oil, gold, grains, etc. The fear is that higher interest rates and a tighter monetary policy in China will slow their demand for a variety of commodities, which would of course, be bearish. This was reflected in large overnight losses in the grains, led by beans falling 18 cents. China is by far the largest customer for US bean exports so any slowdown in Chinese bean import demand would have a big negative impact on this market. Longer term tighter Chinese monetary policy will be accomodated by the market but this was a surprise this am so it caused a sharp bearish reaction.

China isn't the only bearish news the market has to contend with this am. Conab, Brazil's version of the USDA, increased their bean production guess to 65.16 million tonnes from their Dec guess of 64.6 million. They raised their corn guess sligthly to 50.5 million vs 50.15 million last month but cut their wheat crop guess sligthly, to 5.03 million vs 5.10 million. It is likely the USDA will follow Conab's lead on Jan 12 and increase their Brazilian corn and bean production guesses also when they put out their Jan crop report.

The $ is higher this am, a negative influence for all the grains. One bullish item this am was the Census Bureau Nov Fats and Oils Report, which shows oil stocks of just 2.904 billion lbs, much lower than the preliminary estimate on Dec 23 of 3.156 billion. Methyl ester (biodiesel) production consumed 232 million lbs of bean oil in Nov, slightly lower than the 246 million in Oct. Weekly Export Sales were mostly poor this am: just 93,000 tonnes of wheat, 365,000 tonnes of corn, 62,000 tonnes of meal and only 3500 tonnes of oil. Bean sales were in line, 726,000 tonnes. The bulls are counting the minutes until late tomorrow, when large scale index fund buying is expected to start, continuing through Thursday next week. This could rally the grains although some traders think it has already been at least partly discounted by the market.

Argentina was dry yesterday and will stay mostly dry until early next week, when up to 1.5" of scattered rain is forecast to return. Brazil saw up to .6" of scattered rain in the south yesterday. More of the same is predicted the next week or so in both southern and northern parts of the grain belt. Up to 1.5" is forecast in the north in the next 3 days alone.