Perspective: Mid-Day Commentary for December 21

By: Arlan Suderman, Chief Commodities Economist

Tue, 21 Dec 2021, 17:49

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 21 - "Risk On" remains the predominant theme on Wall Street today as traders choose to ignore ongoing Omicron risks to focus on positive economic signals. The VIX eased back to trade near 21 at midday, down notably from yesterday's spike above 27, reflecting easing anxiety levels as the major stock indices post significant gains. The dollar firmed to trade near 96.6, while yields on 10-year Treasuries rallied to 1.49%, up nearly 15 basis points from yesterday's low. Crude oil prices are up nearly 4% in active trade, while strong gains are seen across much of the Ag sector as well. Momentum traders quickly amplified gains in soybeans and in Kansas City wheat as chart signals turned, within a background of broad-based buying in the commodity sector. Weather concerns were used to justify the gains for those Ags showing the strongest gains. The protein complex participated in the buying, with live cattle futures surging mid-morning on a report that South Korea suspended beef imports from Canada following the report of a mad cow disease case there several days ago.

A third of Argentina's soybean crop and half of its corn crop were still in the seed bag as of the end of last week, but the portion of those crops that were planted already were in great shape. The question is, will that soon change? Argentina's grain belt has largely received below-normal rainfall through the early growing season, but the rains that have fallen have been timely. As a result, 87% of its soybean crop is rated Good to Excellent, as shown in the graphic below, along with 86% of its corn crop. A lot could change in the weeks ahead, with the forecast leaning dry for much of the belt. Commodity Weather Group projects that upwards of 40% of Argentina's grain belt may be under moisture stress two weeks from now, versus 10% currently. Argentina has a very long growing season, with the first quarter of its corn crop entering the reproductive phase, while half of its crop has yet to be planted. Soybeans are largely in the early vegetative phase of development.

The above is in addition to crop stress currently being felt across the southern third of Brazil's grain belt. We're much further along in Brazil's growing season, but corn and soybean yields in Rio Grande do Sul, Parana and neighboring Paraguay could see significant reductions. The question is, how much of that will be offset by above-trend yields in Brazil's Center-West district further to the north, where harvest will begin very shortly? Our Brazil team will be conducting its next customer production survey at the end of the month, releasing its results on January 3rd. Corn and soybean prices are higher, partly due to the above crop concerns, although I would argue that the focus would be more on good crop ratings and areas of expected good yields if we were in a deflationary period. This is a case where underlying market sentiment relative to inflation tends to change the filter through which traders interpret the same fundamental information.

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