Perspective: Mid-Day Commentary for December 6

By: Arlan Suderman, Chief Commodities Economist

Mon, 06 Dec 2021, 18:13

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 6 - Stocks closely tied to the economy came roaring back today, along with those in the energy sector, as Wall Street responds to encouraging reports that the Omicron variant of Covid-19 may not present symptoms any more serious than the Delta; and possibly less so. Yet, the VIX remains elevated near 28 at midday, reflecting remaining anxiety over Omicron. The dollar index firmed to trade near 96.3 at midday, while yields on 10-year Treasuries rose to 1.42%. Crude oil prices traded 4% higher, while many of the Ags remained under pressure at midday - although they are firming off their session lows, with some moving into the green.

The greatest weakness was in the soybean complex today, amid fears that USDA will cut its export target once again on Thursday when it releases its updated WASDE crop report. More on that below, but I believe USDA will wait to make additional cuts until January/February. We've seen significant backward adjustments to previous week shipments to get us back on schedule for soybean shipments, although there are still reasons to be concerned due to expectations that Brazil will be able to start shipping cheaper new-crop soybeans in a few weeks - earlier than normal. Additional weakness is seen in the soymeal market. The meal market surged to four-month highs last month amid a bulk dry lysine shortage for rations, triggering some livestock producers to switch to soymeal. Yet, that demand for meal also has its limits, capping gains for soymeal. Nonetheless, soybeans are slowly coming off their lows. Corn and wheat are also coming off their lows as the day progresses, with wheat leading the way at a bit faster pace as end users come in to buy the recent price break, erasing early session losses. Live cattle find support from a cash market trading above the board, while gains are limited by increased feeder hedging on ideas that slower chain speed and holiday processor schedules may pressure cash prices in the weeks ahead.

USDA inspected 82.5 million bushels of soybeans for export shipment in the week ending December 2, as shown in the graphic below, along with 29.8 million bushels of corn, 9.0 million bushels of wheat and 6.7 million bushels of grain sorghum. Of the above totals, that portion designated for shipment to China included 53.8 million bushels of soybeans, 5.4 million bushels of corn and 6.6 million bushels of grain sorghum. The graphic below shows that this year's weekly shipment pace is holding deeper into the season than is typical - similar to, but not to the extent of, last year's pace. We need to see that strong shipment pace hold through December if we're going to have a chance to hit USDA's current export target, because China - our largest customer - will likely start loading boats in Brazil early next month to make the 45-day trek across the Pacific. Year-to-date soybean shipments have closed the gap, and now sit 4 million bushels above the seasonal pace needed to hit USDA's target. Unfortunately, I expect shipments to drop off faster than normal in January and February, unless something unexpected occurs to delay loadings next month at Brazil ports. Meanwhile, the gap continues to grow for corn. Marketing year to date corn export shipments fall short of the seasonal pace needed to hit USDA's target by 161 million bushels, with shipments continuing to lose pace. This is normally a slower period for corn shipments, with movement typically strengthening in the spring. However, this year's pace of shipments has been even slower than normal for this time of year, raising concerns about USDA's export target.

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