Perspective: Mid-Day Commentary for December 29

By: Arlan Suderman, Chief Commodities Economist

Thu, 29 Dec 2022, 16:41

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 29 - A rise in jobless claims last week provided the excuse Wall Street needed to buy stocks today. Bad news is good news in the eyes of traders if that news causes the Federal Reserve to soften its rate hikes. The VIX is trading near 22 as we approach midday, while the dollar index is trading near 104.0. Yields on 10-year Treasuries are trading near 3.85%. Crude oil prices are down 1% on lingering recession worries, while the grain and oilseed sector was mixed to weaker as well. Soybeans continue to test the upside potential amid waning momentum, while wheat prices posted double-digit losses in late-month profit taking that pulled corn prices lower as well. In reality, it's risky to make too much of any price moves under thin holiday conditions late in the year until they've been tested under normal trading conditions in January.

U.S. commercial crude oil stocks (excluding the Strategic Petroleum Reserve) rose by 0.7 million to 419 million barrels in the week ending December 23, leaving inventories 6% below levels typically seen at this time of year. Gasoline stocks fell by 3.1 million barrels, partially due to weather-related refinery shutdowns, leaving them 4% below the five-year average for this time of year. Those shutdowns are likely to reduce output for the next two to three weeks. Distillate stocks rose by 0.3 million barrels, but they are still 7% below seasonal levels. Ethanol stocks rose to an eight-month high 24.6 million barrels in the week ending December 23, up from 24.1 million the previous week, and up from 20.7 million the previous year. Ethanol production fell to an 11-week low 963K barrels per day during the week, down from 1,029K bpd the previous week, and down from 1,059K bpd in the same week last year. The production of ethanol utilized an estimated 96.7 million bushels of corn in the week ending December 23, down from 103.3 million in the previous week, and down from 107.4 million bushels of corn in the same week last year. Estimated marketing year corn use for ethanol to date totals 1.615 billion bushels, down 98 million or 5.7% from the previous year, and only slightly below the seasonal pace needed to hit USDA's target for the year.

The soybean market continued to flirt with this week's push above significant chart resistance near $15 today, with much of that buying being chart related, with some fund managers also hoping for a bump in demand as China reopens in the months ahead. The graphic below shows that the national average cash soybean prices is also playing with the $15 area, supported by basis that is running 35 to 40 cents above the five-year average for this time of year - strongest in the west where drought curtailed production, while weaker in the eastern Midwest. The real test will come in the coming weeks as cheaper new-crop Brazilian supplies become available. China has most of the coverage that it needs for January shipment already secured, and February shipments are significantly cheaper coming out of Brazil than they are the United States. U.S. shipments of previous purchases will continue in the weeks ahead, as it takes 45 days for shipments to arrive in China from Brazil, and only 1 - 2 million metric tons will be available for shipment from Brazil in January. But the flow from Brazil should be strong in February, meaning that U.S. shipments should trend lower over the next four to six weeks.

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