Perspective: Mid-Day Commentary for April 21

By: Arlan Suderman, Chief Commodities Economist

Fri, 21 Apr 2023, 16:42

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

April 21 - Stocks remain generally mixed as they drift into the weekend, with traders marking time ahead of the Federal Reserve meeting. The VIX is trading below 17 at midday, reflecting the general sense of apathy on Wall Street currently. The dollar index is trading near 101.8, while yields on 10-year Treasuries are trading near 3.56%. Crude oil prices are modestly higher going into the weekend, that appears like a technical bounce off the 100-day moving average as much as anything, while the grain and oilseed markets are mostly lower. Buyers stepped to the sideline in the grain and oilseed sector ahead of the weekend, leaving the path of least resistance lower. There's simply not an immediate story to give buyers the incentive to step in front of this market currently. Wheat traders are focused on rains forecast for dry areas of the southwestern Plains early next week, even if it will be too late for much of that region's crop. Corn and soybean traders are focused on forecasts that look quite favorable for good yields this year in the Midwest, leading to greater selling in the new-crop contracts. That's best seen where December corn is probing below chart support at $5.50 per bushel to test the March 22 low. Both corn and soybean domestic stocks are expected to rise over the coming marketing year, while wheat stocks are expected to tighten further. Soybeans are also trading headlines of Brazilian soybeans moving north to the U.S. Southeast. That generally has more of a psychological impact on the market than it does fundamental, but perception is reality in the market.

Russia's vast spring wheat belt doesn't get a lot of moisture this time of year, but it's getting even less this year. The spring wheat belt normally receives roughly an inch of rainfall equivalent in the month of April, but 57% of the belt has received less than 50% of normal moisture thus far this month, and 41% has received less than 25% of normal precipitation. Most of this region has been drier than normal through the winter, but the dryness has intensified this spring, with two-thirds of the belt receiving virtually no precipitation of value thus far this month. Dryness can often be a problem in Asia during El Nino weather cycles. Some of this dryness impacts portions of the eastern winter wheat belt as well. We're not currently looking at a major crop failure in Russia, but production estimates are starting to decline. USDA pegged last year's total wheat crop at 92 million metric tons, while it will release its first estimates of the 2023-24 Russian crop on May 12th in its next WASDE crop report. Most private estimates are currently between 82 & 86 mmt. One can debate how much impact this will have on actual trade, but history suggests that the markets tend to pay attention when Russia has a drought that impacts its wheat growing areas. It's not yet a story, but this is an area to watch to see if a story develops over the next 30 to 60 days.

Today's composite purchasing managers flash index for April came in at 53.5. Any number above 50 represents month-on-month growth. The manufacturing index component of the survey rose to 50.4, up from analyst expectations of 49.2. The services index component came in at 53.7, up from analyst expectations of 51.5. In fact, both components came in above the highest surveyed analyst estimate. This suggests more resiliency in the economy, which is what the Federal Reserve fears if it pivots too quickly. This again supports expectations that the Federal Reserve will raise its benchmark rate another 25 basis points on May 3rd, but Wall Street expects the rate hikes to pause at that point. This will likely remain one of the primary focuses of Wall Street fund managers over the coming 12 days.

Much of Russia's spring wheat belt is quite dry month to date. SOURCE: Commodity Weather Group

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