Perspective: Mid-Day Commentary for November 24

By: Arlan Suderman, Chief Commodities Economist

Fri, 24 Nov 2023, 17:41

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

November 24 - Stocks were stagnant in this holiday-shortened trading session today. Yet, the VIX made a new low below 13 for its current move, reflecting calm on Wall Street as traders watched shoppers flock to stores for Black Friday while another record was set for people traveling across this country for the holiday. The dollar index is lower, trading below 103.5. Yields on 10-year Treasuries are trading near 4.48%, while yields on 2-year Treasuries are trading near 4.96%. Crude oil prices are 1% lower on the delay in the OPEC meeting, while the grain and oilseed sector is mostly lower, led by the soybean complex. The forecast is drier for Center-West Brazil, but traders are focused on a Wednesday court ruling here in the States. Meanwhile, wheat makes new two-year lows in Kansas City and Minneapolis, adding to the weakness in the corn market. The bottom line is that traders are currently more concerned about demand in these markets, with the path of least resistance still lower.

Soyoil prices plummeted at the open this morning, dragging soybean prices with them, as traders reacted to a late Wednesday court ruling that provided a setback for the biofuel industry. A U.S. appeals court late Wednesday struck down a Biden Administration decision to deny small refiners "hardship waivers" that exempted them from the biofuel blending mandates. The U.S. Environmental Protection Agency had denied nearly all of the outstanding petitions from oil refiners who were arguing that blending ethanol and other biofuels into the fuel that they sell created financial hardship for them. The Fifth Circuit Court of Appeals ruled in favor of the refiners that the EPA had wrongfully made the retroactive decision. It said that the EPA can issue waivers if they prove that the obligations cause them undue harm, but the court apparently had a problem with retroactively not allowing the waivers. That increases the supply of RINS on the market, although RINS prices are already suppressed. The decision certainly doesn't do a lot to encourage new investment in the renewable fuel sector in the near-term, although existing plants will likely continue to move forward. The expectation is that a new lawsuit will be filed, but that all takes time to play out.

Rainfall exceeded expectations the past month, giving more of a bump to water levels on Gatun Lake than expected, although they still remain low. Gatun Lake provides the water needed to operate the Panama Canal's lock and dam system that allows ships to move between the Pacific Ocean and the Caribbean Sea. The left graphic below shows monthly water levels on the Gatun Lake in three of the driest years with the lowest water levels, versus projected water levels as we start 2024. The dry season starts for Panama in late December, when rainfall drops off considerably for the region until May. That means that any problems with low water levels on the Panama Canal will likely stay with us until at least May, raising costs and delays for grain and oilseed shipments from the Gulf ports headed to key markets in Southeast Asia. USDA-FGIS & S&P Global data shows that 41 cargoes departed from Gulf ports October 16 - 29 of last year, with 34 of those moving through the Panama Canal and 7 through the Suez Canal. The data shows that 38 ships departed Gulf ports October 15 - 28 this year, with just 5 of those going through the Panama Canal and 33 moving through the Suez Canal, raising costs and length of time for arrival to Southeast Asia, providing one of the reasons why China continues to buy Brazilian soybeans at the expense of U.S. exports.

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Perspective: Mid-Day Commentary for August 7

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Perspective: Morning Commentary for August 7

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