Perspective: Mid-Day Commentary for May 23

By: Arlan Suderman, Chief Commodities Economist

Tue, 23 May 2023, 16:48

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 23 - Stocks are mixed to weaker midday, as traders monitor progress - or the lack thereof - in the debt ceiling talks. The VIX is slowly creeping higher this week, trading near 18 at midday today. The dollar continues to push higher along with Treasury yields. The dollar index traded near 103.6 at midday, after hitting a fresh two-month high earlier in the session. Yields on 10-year Treasuries reached a fresh two-month high of 3.76%, while yields on 2-year Treasuries hit a fresh two-month high of 4.41%. The broader commodity sector is generally in the green at midday, but without a lot of conviction. Crude oil prices are nearly 2% higher, and trading just below three-week highs, while the grain and oilseed sector is mixed.

Yesterday's rally in the soybean market didn't last long after failing to take out Friday's session highs, resulting in a return of sellers to the market again. On the other hand, wheat prices saw double-digit gains today as chatter coming out of the Black Sea region made traders question whether they'd taken prices too low for now. Russia allowed just four ships to move into two of the three approved Ukrainian ports yesterday as tensions rise amid reports of attacks on the Russian side of the border. Stronger wheat prices provide support for corn, which sees a few more weeks of export demand before new-crop Brazilian supplies become available. The first of the fields are being harvested in Mato Grosso, Brazil, although it will be another 30 days or so before we see significant supplies available. Otherwise, the U.S. corn and soybean crops are going in the ground well, with just very localized issues with weather.

The U.S. Environmental Protection Agency reportedly recommends a delay in including electric vehicles in the final biofuel blending mandate rule sent to the White House, or more commonly referred to as the generation of e-RINS that would have diluted the value of those generated by the traditional biofuel industry. This has largely been expected over the past several weeks, with bipartisan support for the traditional biofuels stepping up their challenge of e-RINS. The EPA was concerned that the plan would face numerous lawsuits, as well as potential political headwinds. The EPA is preparing its final biofuel blending obligations for the years 2023-2025, with the above delay now putting the e-RINS program in limbo. The EPA says that it hopes to finalize its rule by a June 14 deadline, although these deadlines have been treated as mere suggestions in recent years.

Rainfall is generally below normal across much of the Midwest, with that pattern expected to hold for the week ahead. Forecasters that I follow believe the trend will turn wetter by the second week of June, although a dry start to the summer is not unusual with developing El Ninos. Eric Snodgrass with Nutrien brought this trend to my attention, which shows up in the following graphic on the left showing June rainfall in analog ENSO years, with July/August for those years seen on the right. Keep in mind that the predominant pattern also tends to feature milder temperatures on a northwesterly flow.

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