Perspective: Mid-Day Commentary for December 5

By: Arlan Suderman, Chief Commodities Economist

Thu, 05 Dec 2024, 17:39

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

December 5 - Stocks are choppy to mixed at midday as traders hit the pause button ahead of tomorrow's monthly jobs report. The general expectation is that the poor October report will be a "one-off" number, with tomorrow's numbers recovering again, but the risk is there that we could see back-to-back poor reports. My bias is the former, but we'll see. The implications for this month's Federal Reserve meeting is significant. For today, the VIX continues to trade near 13.5, while the dollar index is notably lower near 105.8. Yields on 10-year Treasuries are trading near 4.19%, while yields on 2-year Treasuries are trading near 4.16%. Crude oil prices started higher, but have slipped modestly lower midday. The grain and oilseed markets continue to find good support from value buying at these levels.

Crude oil, corn, soybeans, and wheat all face similar dynamics. Recent price action dropped these markets to levels that previously found support on the charts, or near those levels, and levels where we also previously saw end user buying. Cheap prices raise the risk of a black swan event creating price strength more than additional weakness. They can go down from here, but end users start worrying more about upside risks when prices get this cheap. As such, value buying emerged again. Soyoil and wheat prices were the leaders. Soyoil is supported by strong palm oil prices as Indonesia ramps up biodiesel blending rates, while the wheat market starts contemplating tighter Black Sea supplies.

Cheap prices create demand, and we're seeing that play out before our eyes, although it takes time to turn the bear train around. Exporters sold 85 million bushels of soybeans in the week ending November 28, as shown below, along with 68.2 million bushels of this year's corn, 13.9 million bushels of wheat and 0.2 million bushels of grain sorghum. The week's corn and soybean export sales were the largest for that week for any year going back to at least 1997 - the extent of my records. Mexico was the featured buyer of U.S. corn during the week at a net 15.4 million bushels of the current crop, on top of 0.9 million bushels of next year's crop. China was the featured buyer of U.S. soybeans during the week at a net 24.6 million bushels, but 11.8 million bushels of that total was already on the books under "unknown destinations," while unknown also added another net 15.9 million bushels to its commitments.

So how will this impact USDA's export targets? That's where it gets interesting. Marketing year to date corn export sales exceed the seasonal pace needed to hit USDA's target by 284 million bushels million bushels. We tend to credit strong sales to Mexico for that fast pace, but sales to Mexico only exceed last year's pace by 58 million bushels. While significant, sales to date to "unknown destinations" exceed the previous year's pace by 180 million bushels. We saw something similar in 2020 when prices were also cheap, and that business is likely resellers buying at multi-year lows confident that they will be able to move the corn to various destinations. I still think we beat USDA's current target, but we likely are front loading sales a bit. Marketing year to date soybean export sales exceed the seasonal pace needed to hit USDA's target by 88 million bushels. China has been the headline buyer, but its sales pace continues to fall short of the pace of recent years. Instead, we see a plethora of other countries stepping up to buy after China essentially emptied Brazil's shelves. Of course, it will have cheaper new crop supplies available early next year.

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