Perspective: Morning Commentary for December 13

By: Arlan Suderman, Chief Commodities Economist

Mon, 13 Dec 2021, 14:28

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

December 13 – Our thoughts and prayers go out to those impacted by a devastating weekend of terror as tornados and strong winds ravaged areas of six states, leaving dozens of dead just ahead of the holiday season. At least 70 deaths were seen in Kentucky alone, with many seriously injured individuals still clinging to life in hospitals through the area. This was a weekend that will live on in the memories of those who survived it for the rest of their lives. It puts the rest of what we deal with in politics and economics into perspective. Hug your loved ones!

U.S. stocks posted one of their best weeks in months last week, as Omicron fears eased, and the market rebounded from the previous week’s fear-driven selloff. The focus shifts to the Federal Reserve this week amid expectations that it will take a bit more hawkish view of the economy. Last week’s consumer inflation data didn’t surprise anyone, but it was still the strongest that we’d seen in several decades. We’ll see inflation data from the producer level tomorrow morning, just as members of the Federal Open Market Committee begin their two days of meetings to review this country’s monetary policy. The market expects the FOMC to speed up its tapering program, perhaps completing it in March, which would allow it to start raising its benchmark interest rate at its May meeting, although there are some who believe the initial rate increase could come sooner. The VIX is trading near 19 this morning, reflecting relative calm on Wall Street, while the dollar is trading higher near 96.3. Yields on 10-year Treasuries are trading near 1.47% this morning. Crude oil prices are modestly lower, as are the Ags.

Stock futures came off their highs this morning to erase their overnight gains as the United Kingdom reported its first death from the Omicron variant of Covid-19. The U.K. reports that the Omicron variant now accounts for 40% of infections in London, after the first case was detected in the U.K. on November 27^th. The one characteristic of Omicron that seems clear is the speed at which it is transmitted in the population. Delta remains the primary variant thus far in China, with another 80 new locally transmitted cases yesterday, including 74 in Zhejiang. This province had the fourth highest GDP in China in 2020 equal to $1 trillion, which would make it the 17^th largest economy in the world if it were a country. Zhejiang reported 173 locally transmitted cases of Covid-19 in the week ending December 12, yet at least a dozen Chinese listed companies reported they had ceased production in the province due to Covid-19 restrictions. China’s zero-tolerance policy toward Covid is hurting its economy, but at this point, it may have little choice. Some models suggest that it could have 6-700K cases per day if it reversed its policy, overwhelming its healthcare system. I should add that the port city of Ningbo is also in Zhejiang province, which has the third largest port in the world, with nearby Shanghai containing the largest port in the world, based on volume. Authorities are prioritizing keeping these ports functional, but the risks to supply chain disruptions are clear. One more factor to consider today, the first detected case of the Omicron variant in Mainland China was detected in the port city of Tianjin, which may dramatically amplify the above problems due to the apparent speed of its spread.

The March corn contract settled at $5.90 per bushel on Friday, although it has pulled back modestly from that level this morning. It’s trading just below $6 amid firming cash basis in the country, despite USDA’s forecast of nearly 1.5 billion bushels of surplus stocks for the current year. Why? I would argue that it’s all about next year. Farmers see the high cost of crop inputs, and they are in no hurry to sell their 2021 crop, believing that the global corn market should remain well-supported. Fund managers in an inflation-oriented market tend to manage supply and demand at a higher price level as well, with high fertilizer prices being a piece of the fundamentals they use to justify it. Our sources now tell us that Chinese farmers are planning to reduce fertilizer application rates in 2022. They normally apply higher rates than necessary for their yield potential, so we may or may not see reduced production as a result. I also saw increased reports over the past week out of Brazil saying that its farmers plan to reduce application rates for the safrinha corn crop that gets planted in February, which could be detrimental to yields, while we expect some reduction in U.S. application rates next year as well. Meanwhile, we expect both reductions in acreage planted, as well as fertilizer rates of application in much of Europe and the Black Sea region, where shortages are expected to be more significant in 2022 due to very high natural gas prices. Looking at USDA’s balance sheet, this wouldn’t appear to be a problem. But remove China from the balance sheet, since it is a major importer, and remove the United States, to assess the situation for the rest of the world. The global supply drops to a 36-day supply – the tightest of the past 20 years. There’s not much margin for reducing global production in 2022. That’s not reason to sustain a rally to ration demand at this time, but it does suggest that there is reason to be concerned.

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Mike CastleThu, 06 Aug 2026, 13:24

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Matt ZellerWed, 05 Aug 2026, 12:39

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Perspective: Mid-Day Commentary for August 4

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Mike CastleTue, 04 Aug 2026, 14:58

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