Perspective: Mid-Day Commentary for October 13

By: Arlan Suderman, Chief Commodities Economist

Thu, 13 Oct 2022, 16:35

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

October 13 - The broader markets sold off sharply following the release of this morning's inflation data that came in hotter than expected. However, the reaction was relatively short in duration, with many of these same markets then erasing their losses, and even trading higher - significantly higher in some cases. Stocks are pushing higher once again as we approach midday, with many of the commodities doing the same. We'll get critical retail sales data tomorrow to shape the headlines. The VIX is trading near 32 at this hour, so many traders remain very nervous about the sustainability of this attitude shift. The dollar index is currently posting a chart reversal lower, which contributes to the above flip in sentiment. The greenback rallied sharply to 113.9 when the consumer price index data was released, before turning lower to trade near 112.5 at this hour. Yields on 10-year Treasuries are trading near 3.95%, after hitting a post-report high of 4.08%. Yields of 2-year Treasuries remain at 15-year highs near 4.43%. Crude oil prices dropped notably on the CPI data, but they have since rallied to trade 2% higher. The grain and oilseed markets are mostly higher at this hour, after trading notably lower following this morning's CPI report.

Russian President Putin submitted his list of concerns to the United Nations about the current agreement that allows grain to flow from three terminals in southern Ukraine. Moscow stated that it was prepared to block renewal of the agreement if its demands are not met. Russia is upset that exports of its own grain and fertilizer are struggling. The sanctions put in place by the West do not block these exports, but they do make many entities reluctant to do business with the invading nation, or even have an ethical concern about doing so. That's probably not going to change any time soon, especially with President Putin using the "nuclear" threat in his rhetoric about the war. I've said from the start that I was skeptical about this agreement - it doesn't serve the interest of Vladimir Putin in my opinion. That makes it subject to rejection by him when things are not going well for him in the war, which they are not.

The grain and oilseed markets continue to trade headlines. Wednesday's WASDE headlines focused the market on supply and demand fundamentals. This morning's headlines focused the market on recession fears - concerns that the Federal Reserve will drive us into a recession that reduces demand for commodities in its attempt to tame inflation. The mid-morning headlines refocused the market on supply and demand fundamentals again - at least the wheat market, and also for corn and soybeans to a lessor extent.

Crude oil stocks (excluding the Strategic Petroleum Reserve) rose 9.9 million to 439.1 million barrels in the week ending October 7, leaving supplies roughly 1% below the five-year average for early October. Gasoline stocks increased 2.0 million barrels, but they remain 8% below seasonal levels. Distillate stocks fell 4.9 million barrels, putting them 23% below levels typically seen in early October. Ethanol stocks firmed to 21.9 million barrels last week, up from 21.7 million the previous week, and up from 19.8 million the previous year, but they're still not problematic. Ethanol production increased to 932K barrels per day, up from 889K the previous week, but down from 1,032K barrels per day in the same week last year. Estimated corn use for producing ethanol firmed to 92.0 million bushels, as shown below, up from 87.8 million the previous week, but still well below the seasonal pace needed to hit USDA's target. Estimated marketing year to date corn use for ethanol totals 476 million bushels, down 9% from the previous year's pace.

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