Perspective: Morning Commentary for November 8

By: Arlan Suderman, Chief Commodities Economist

Mon, 08 Nov 2021, 14:24

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

November 8 – Stocks are poised to build on Friday’s record run this morning, as Wall Street focuses on strong earnings reports amid ongoing fiscal and monetary stimulus, including passage of the infrastructure bill over the weekend. Traders will get key inflation data for October this week, while getting no less than nine public appearances by members of the Federal Open Marketing Committee – any which of could provide market-moving comments – including a couple of appearances by Fed Chair Jerome Powell. The VIX traded either side of 17 early this morning, while the dollar index slipped lower from Friday’s one-year highs to trade near 94.2. Yields on 10-year Treasuries traded near 1.48%, following Friday’s collapse to six-week lows. Crude oil prices are modestly higher this morning, while the Ags were mixed to weaker ahead of tomorrow’s highly anticipated USDA WASDE crop report.

Crude oil prices firmed overnight on the heels of Saturday’s approval of the infrastructure bill by Congress. Optimism emerged that the bill would stimulate demand for energy as the additional funding provides fiscal stimulus for the economy. However, that optimism waned a bit this morning when U.S. Energy Secretary Jennifer Granholm stated in an interview on MSNBC that President Biden is looking at ways of stemming high gasoline prices. She went on to say that the president wants to see an increase in the supply of fuel, and that he is considering options for an announcement later this week. Crude oil prices sold off sharply when she made the statement, but then stabilized, albeit well off their session highs.

Oil traders also took note that Chinese crude oil imports fell to three-year lows last month as Covid restrictions take their toll on the economy and amid an absence of quotas. China reported 65 cases of Covid19 yesterday, indicating that it still has not brought this latest outbreak under control. The numbers are very small, relative to what we see in the United States – or most other places in the world – on a daily basis. But China’s zero-tolerance policy requires significant restrictions and quarantines, which is what provides a drag to its economy while also contributing to global supply chain disruptions. It is still expected that China will get control of this latest outbreak with additional lockdowns, but the cycle is expected to continue on through the winter. Chinese meat imports fell to 664K metric tons in October, representing a 20-month low, while soybean imports fell to just 5.1 million metric tons.

U.S. daily Covid counts plateaued near 70K positive tests per day over the past couple of weeks. Some states continue to trend lower, while other states are still seeing their numbers rise. Florida had been the focus of health officials earlier this summer with surging Covid rates, but it now has very low numbers. Meanwhile, some other states are still seeing their numbers reach new highs for the Delta round of infections. Fortunately, daily Covid-related deaths continue to trend lower, averaging a little over 1K per day currently. The CDC’s page for monitoring Covid-related hospitalizations quit updating a month ago, but the numbers were trending lower at the time. The bottom line is that America is transitioning to learning how to “live with Covid.” New treatments are being approved, while more Americans are also getting vaccinated to reduce the severity of the cases. Covid may be taking a bit of growth off the top of the economy, but it is no longer a significant hindrance to economic growth in America.

USDA will release its November WASDE crop report at Noon ET tomorrow. The November report is not known for its big surprises, like some other reports, but there are several key numbers that could impact price direction going forward. Obviously, the trade will be focused on USDA’s corn and soybean production estimates, with expectations that the agency will bump its yield estimates modestly higher in this report. That’s largely been priced into the market, with little price impact expected unless the changes are larger than expected, or unless USDA totally surprises the trade with lower yield estimates. But the bigger questions revolve around the demand side of the balance sheet. USDA may not address the issue in this report, but I’m most concerned about its soybean export target, largely due to soft demand in China due to poor feeding margins for hogs. China imported just 5.1 mmt of soybeans in October. These soybeans would have been purchased in August or September at the latest, but buyers have done little to increase purchases since then to pick up the pace. China has just under 10 mmt of U.S. soybeans on the books for delivery currently. A sharp decline in Brazilian basis last week, combined with a similar move in the freight market to drop prices there below U.S. values. We are in danger of seeing U.S. soybean exports fall by 50 - 150 million bushels below USDA current target. We have a very narrow window to ship soybeans to China that begins to close over the next several months. The pace must pick up very soon, or exports will decline.

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