Perspective: Mid-Day Commentary for September 9

By: Arlan Suderman, Chief Commodities Economist

Thu, 09 Sept 2021, 16:44

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 9 - Stocks erased early losses today, but they have thus far struggled to sustain a rally. The action comes in the wake of the European Central Bank's decision to ease back on its emergency bond purchases, but it refuses to call that tapering, which could create strength for the euro at a time when Fed Chair Jerome Powell continues to support an easy money policy. A strong euro could stifle Europe's economic recovery, leading to the ECB's careful selection of wording. The VIX remains above 18 at midday, while the dollar index falls below 92.5 as the euro firmed, while yields on 10-year Treasuries fell below 1.32%. Crude oil is modestly lower at midday, along with much of the commodity sector. Corn prices bounced off the 200-day moving average in technical buying, while wheat and soybeans remain under pressure ahead of tomorrow's highly anticipated USDA WASDE report. Live cattle futures also bounced off the 200-day moving average, but that's largely been the extent of strength in the protein complex.

Chinese inflation at the consumer level came in cooler than expected at only 0.8% year-on-year, which is its lowest growth rate since March. However, a 44.9% year-on-year decline in pork prices dropped China's consumer price index by 1.09 percentage points. Meanwhile, beef was up 2.9% year-on-year, while mutton was up 3.1%, aquatic products were up 11.7% and eggs were up 13.95%, according to China Direct from our Shanghai office. Meanwhile, inflation remains red hot at the wholesale level. China's producer price index rose 9.5% year-on-year, beating expectations of 9.1% and its highest level in 13 years. The primary drivers included big increases in the price of coal, metals and chemicals. Why does this matter to us? Inflation at the wholesale level in China is largely exported to Europe and to the United States, contributing to our inflation here.

U.S. commercial crude oil stocks (excluding those in the Strategic Petroleum Reserve) fell by 1.5 million to 423.9 million barrels in the week ending September 3rd. That puts inventories roughly 6% below levels normally seen in early September. Gasoline stocks fell by 7.2 million barrels due to refinery shut downs following Hurricane Ida, putting them 4% below the five-year average for the date. Distillate stocks dropped by 3.1 million barrels, and they are now 12% below seasonal levels. The heating and grain drying season is just ahead, but propane/propylene levels are 20% below the five-year average for this time of year.

Ethanol stocks fell to a three-month low 20.4 million barrels in the week ending September 3rd, down from 21.1 million the previous week, but up from the 20.0 million barrels in inventory in the same week last year. Ethanol production firmed to 923K barrels per day last week, up from 905K the previous week, but below the 941K barrels per day produced in the same week last year. The production of ethanol utilized an estimated 91.4 million bushels of corn last week, up from 89.6 million the previous week. The corn marketing year ended on August 31st, which was in the middle of the above week's data. Breaking it down and running our calculations suggests that marketing year corn use for ethanol came in at 5.029 billion bushels, down 46 million from USDA's August 12 estimate. The agency may make that adjustment tomorrow, or it may make a partial adjustment tomorrow with more revisions coming in October when it can recheck its data. The graphic below shows weekly corn use for ethanol for the past year, versus the previous year and versus the seasonal pace needed to hit USDA's latest target.

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