Perspective: Mid-Day Commentary for December 19

By: Arlan Suderman, Chief Commodities Economist

Mon, 19 Dec 2022, 17:06

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 19 - Early gains turned into modest losses as we approached midday on Wall Street amid lingering economic worries. The VIX though remains near 22 at midday, while the dollar index trades near 104.5. Yields on 10-year Treasuries are trading near 3.59%. Crude oil prices are more than 2% higher, while the grain and oilseed markets are mostly lower. Wheat prices are mixed to weaker, after bumping against the top of their descending chart channel last week amid a slow flow of holiday market news. Corn prices similarly are pulling lower after failing to take out the top of the descending channel on the charts. Soybean demand has been good, but China will soon be shifting to Brazilian supplies, with soymeal considered overbought on its last rally. Last week's export inspections included 29.3 million bushels of corn (shown below), along with 59.5 million bushels of soybeans and 11.2 million bushels of wheat. Corn export shipments are improving due to a recent pickup in shipments to China, but this is the time of year when the seasonal pace normally picks up. Marketing year to date corn inspections fall short of the seasonal pace needed to hit USDA's target by 186 million bushels, and the deficit is growing. Soybean shipments to date fall short by 33 million bushels, but the deficit is slowly shrinking.

Much attention will focus on China over the next several weeks, as Covid races through the population. That's largely because the information flow is so controlled by the Chinese government, and outside observers aren't sure what they can believe and what they cannot. The official death toll thus far is extremely low from the current outbreak, even as wire service stories tell of hearses lined up outside of a Beijing designated Covid crematorium. We will continue to feed you the best information that we have each day from our boots on the ground in China via our China Direct newsletter. There is little doubt that the next few weeks will be rough for the Chinese economy, as well as the people of China. The question then will focus on their ability to recover, and the timing of that recovery. Right now, we remain optimistic that China should be poised for a strong recovery; perhaps as early as the second quarter of next year. That could have significant market implications if it plays out.

The U.S. housing industry is in recession, even if the overall economy is not. Rising interest rates combine with economic uncertainty to keep home buyers on the sidelines. The National Association of Home Builders' monthly housing market index came in below Econoday's average analyst estimate each month this year, and that trend continued for December as well. The index fell to 31 this month, down from 33 in November and below analyst expectations that it would steady itself with a reading of 34 this month. The current index compares to an 84 in the same month last year. The housing market index has three components - single family present conditions, single family six-month outlook and prospective buyer traffic. The first two components came in at 36 and 35 respectively this month, down from 90 and 85 a year ago. The single family present conditions component showed continued deterioration, although the six-month outlook index showed a four-point improvement from the previous month. The traffic component fell all the way to 20, matching the previous month, but down from 71 a year ago. The poorest conditions are in the West, while the South is faring the best in the current industry slump.

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