May 8 - Stocks and commodities are mixed to weaker at midday as the market continues to digest mixed economic signals. The VIX is trading near 13, while the dollar index is trading near 105.5. Yields on 10-year Treasuries are trading near 4.48%, while yields on 2-year Treasuries are trading near 4.83%. Crude oil prices firmed to modestly higher at midday, after setting fresh eight-week lows earlier in the session, as fighting heats up again in the Gaza Strip. The grain and oilseed sector was mostly weaker in this morning's trade as traders brace for a possible bearish crop report from USDA on Friday. Reuters reports that the average trade guess puts 2024-25 corn ending stocks a 2.284 billion bushels, with soybeans rising to 431 million bushels and wheat at 786 million bushels. The recent grain rally hit the pause button when those numbers were released, with traders now bracing for how the market might react to USDA's numbers when they are released on Friday. Wheat prices failed to respond to a Reuters story about significant frost damage in parts of Russia.
The Argentine Oilseed Workers Union confirmed that it will join the general work stoppage being called for in Argentina on Thursday to protest labor reforms being debated in Congress as part of President Milei's plan to bring the country out of the economic despair it has been in for some years now. Strikes are common in the Argentine culture, and they typically do not last more than a day or two, but occasionally they last much longer. The risk in this case would be if it would last long enough to curtail soybean crush activity, making it difficult for its global customers to get shipments of soyoil and soymeal. Argentina is known for being the world's largest exporter of these two products. A longer work stoppage would be expected to result in customers looking to Brazil and to the United States for the products. We have to assume a short work stoppage, at least until we see otherwise.
Chinese feed production was down 3.2% year-on-year in March, according to data from the China Feed Industry Association. Feed output in the first quarter totaled 68.96 million metric tons, down 3.4% from the previous year. The greatest drag in production was a drop in demand for pig feed, which was down 3.6% year-on-year. China's pig herd size was down 5% year-on-year in the first quarter. Poultry feed demand was relatively stable, with first quarter demand rising slightly, up 0.16% year-on-year in the first quarter, and up 0.38% and 0.47% in April and May respectively. Pig feeding margins are slowly climbing back above 100 yuan/pig ($13.80 per head) in the last half of March to 173.8 yuan/pig ($24 per head) in late April. That's still not a high enough level to stimulate expansion, but it is expected to stabilize the size of the hog herd, and therefore to stabilize demand for feed going forward.
U.S. commercial crude oil stocks fell by 1.4 million to 459.5 million barrels in the week ending May 3, leaving them roughly 3% below levels typically seen in early May. Gasoline stocks rose by 0.9 million barrels, putting them 2% below the five-year average for the week. Distillate stocks increased by 0.6 million barrels, leaving them 7% below seasonal levels. Ethanol stocks fell to a calendar year low 24.2 million barrels during the week ending May 3, down from 25.2 million the previous week, but still up from the 23.3 million barrels on hand in the same week last year. Ethanol production slipped to 965K barrels per day last week, down from 987K bpd the previous week, but matching the pace seen in the same week last year. The production of ethanol utilized an estimated 97.3 million bushels of corn during the week, down from 99.5 million bushels the previous week. Estimated marketing year to date corn use for ethanol totals 3.655 billion bushels, up 188 million bushels or 5.4% from the previous year's pace, and 100 million bushels above the pace needed to hit USDA's target for the year. I look for USDA to bump its target for this year by another 25 to 50 million bushels in its crop report on Friday.
