Perspective: Mid-Day Commentary for October 28

By: Arlan Suderman, Chief Commodities Economist

Fri, 28 Oct 2022, 15:49

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

October 28 - Amazon provided a dire warning in its earnings report, but that was over-shadowed by upbeat results from Apple, leading to a stock rally across all three major indices this morning. The VIX fell to 26.5 this morning, it's lowest level in five weeks. The dollar index firmed to trade near 110.8, while yields on 10-year Treasuries traded near 3.96%. Crude oil prices are 1% lower, while the grain and oilseed markets are lower as well, with a broad-spectrum of commodities under pressure this morning as money rotates into the equities. This week's cash cattle trade was mostly $2 higher on a live basis at $150, but futures continue to consolidate following their recent sharp gains. Lean hog futures are bouncing following sharp losses on Thursday.

Nearly all of the U.S. soybean crop should be harvested by the time that USDA releases its WASDE crop report on November 9, so it should have a pretty good handle on the size of the crop. As such, we should start seeing the market's focus shift increasingly toward the South American crop over the next two weeks. StoneX Brazil should release its updated monthly customer survey of production on Tuesday, November 1st. I have not seen any of the data to this point, so don't read that into my comments. That said, I expect it to show a big crop that's about 27 million metric tons larger than the previous year's crop. That's nearly as much as what we shipped to China in the past marketing year. The optimistic production estimate is expected to reflect crop conditions as of November 1st, which are generally very good.

The primary question though is, how will the crop perform after November 1st? Forecast models over the past two weeks have consistently called for a change in the weather pattern once we turn the calendar to November. That change keeps moving forward in the forecasts. The near-term forecasts show a strong cold front moving from southwest to northeast across all of Argentina up all the way up to the Amazon River Valley, pushing colder drier air into the region. In fact, Argentina faces significant frost risks on Tuesday morning, with that risk then moving north into Paraguay and southern Brazil on Tuesday and Wednesday mornings. The current thought is that it will be a close call, but probably not resulting in significant damage, although the risk is there. But the graphic below shows the 30-day outlook beyond the next 10 days - taking us to December 12. It would suggest that drought will continue to be a significant problem in Argentina, with dryness spreading north across key corn and soybean producing areas in Brazil as those crops enter their critical reproductive phases of development. Long-range forecasts have very low confidence, but the models have been consistent in this shift, and they do suggest that they are picking up changes in the atmosphere that need to be watched.

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