Perspective: Mid-Day Commentary for April 22

By: Arlan Suderman, Chief Commodities Economist

Fri, 22 Apr 2022, 16:16

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

April 22 - Stocks tumbled this morning as the war escalates in Ukraine and ahead of the May 3rd & 4th meeting of the Federal Reserve. A Russian general confirmed expectations in the West today that Russia's goal is to gain control of eastern oblasts of Ukraine, as well as all of its southern ports, which would put a strangle hold on Ukraine's economy. Meanwhile, traders are increasingly worried that the Federal Reserve will be too aggressive in withdrawing the candy jar of stimulus that has been so good to the markets over the past two years. The VIX rallied to a fresh five-week high near 26 as we approached midday, reflecting those rising fears ahead of the weekend. The dollar index put in a fresh two-year high near 101.3 as yields on 10-year Treasuries traded near 2.90%. Crude oil prices are more than 1% lower at midday, while the Ags are mixed. Most Ag commodities rallied early this morning when Indonesia shocked the world by banning the sale of palm oil. That sent the edible oils sharply higher, with soyoil posting fresh record highs. However, soymeal and soybeans sold off hard, with the Algos punishing the oilseed. Corn prices followed soybeans lower, despite big export sales to China and to Mexico. Wheat prices initially followed, but then rallied again when Thursday's lows held. Live cattle futures are pulling back ahead of this afternoon's big USDA cattle-on-feed report.

NOAA's Climate Prediction Center made headlines this week when it released its outlook for the summer. The graphic below provides a statistical analysis of its confidence level for precipitation in June, July, and August. The darker browns, with indices close to "1", reveal where the CPC has its highest confidence levels that the area will see below normal rainfall this summer. This is a very daunting forecast, which is rarely seen from an agency not known for being willing to stick its neck out on long-range forecasts. Its forecasts tend to be more conservative, so this one really turned heads.

Will this forecast happen? It may, but the pieces are not yet in place for that to happen. Based on our study of history, several things probably need to come together in the weeks ahead to make it happen. That would include 1) increased cooling of waters in the northwestern Pacific into the Gulf of Alaska down the west coast of the United States, 2) lingering La Nina in the equatorial Pacific (although this one isn't as critical), and 3) establishment of the summer high pressure ridge along the eastern Rocky Mountains, or further to the east. The next 30 - 45 days are when we'd expect these things to come together, if they're going to happen, based on my conversations with respected climatologists. On the other hand, you can move the below brown shaded areas further west if the high pressure ridge forms further west in the Great Basin, or move it further east to cover more of the Midwest if it moves out into the Plains. One other item to note. Our bumper crops with above-trend yields tend to come from early-planted crops. We are greatly reducing the odds of that happening this year, although we are still very much in play for trend yields, depending on how the above does or does not play out.

The statistical confidence in a western Midwest dry summer is high. SOURCE: NOAA Climate Prediction Center

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August 7 – The U.S. economy unexpectedly lost 23k jobs in July, dramatically below market expectations of an 80k increase and marking the worst Non-Farm Payrolls print since February. Furthermore, May and June were both revised sharply downward, with combined revisions showing 103k fewer jobs than previously reported. Outside of the healthcare sector, which added 22k jobs in July, the losses were very broad-based. Government payrolls saw the largest decline, shedding 53k jobs in July, the largest seen since October 2025, while June was revised down to show a loss of 10k jobs as well. The private sector at least saw growth, adding 30k jobs in July, now matching the month prior after it was revised down from the 49k initially reported, and substantially missing forecasts of 78k jobs being added. This is a sharp reversal in course from the largely better than expected U.S. labor data seen earlier this week.

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August 6 – Stocks remain quietly mixed at midday as both the S&P 500 and Dow Jones remain just below their fresh all-time highs put in yesterday. This is allowing the VIX to cool to a four-week low below the 15.4 mark, reflecting the collective sigh of relief in the market amid largely better than expected U.S. economic data today. The dollar remains quietly in the green in its relatively tight range this week, trading at 99.9 at the time of writing. Treasuries remain elevated but have cooled from their recent peaks, with 30-year yields trading at 5.189%, 10-year yields trading at 4.647%, and 2-year yields trading at 4.229% at midday. Crude oil also remains quietly in the green, with nearby WTI up 2.3% on the day trading near $76.80 and nearby Brent up 2.4% on the day trading near $81.40. The ags remain mixed, with the wheat complex now squarely in the red while corn and soybeans cling to small gains, and the livestock complex largely pushes lower.

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