Perspective: Mid-Day Commentary for February 16

By: Arlan Suderman, Chief Commodities Economist

Thu, 16 Feb 2023, 17:20

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

February 16 - Producer prices are accelerating and the labor market remains tight, which argues for the Federal Reserve maintaining its pace of rate hikes for longer than Wall Street had hoped. As such, the equities are under pressure again today, along with many of the commodities. Yet, the market continues to take the news in stride, as it's been pricing in these fears for much of the past nine months or so. The VIX is trading below 19 again, reflecting relative calm on Wall Street. The dollar is firm, trading near 103.9 as Treasury yields trend higher. Yields on 10-year Treasuries are trading near 3.83%, after setting new highs for the calendar year near 3.87% earlier in the morning. Crude oil prices are steady to firm, as they find value below $80 on improving global demand, while the grain and oilseed sector is mixed at midday. I've been impressed with how this market has held this week amid the hot inflation and retail sales data, but neither is anyone too excited about buying it right now.

Soybean and wheat prices found light buying interest today when the equities came off their lows. U.S. soybean stocks are tight, and may get a bit tighter before we harvest the next crop this fall. Additional support comes from the ongoing drought in Argentina, with production estimates continuing to erode lower there. Hard red wheat prices found support as they bounced off the bottom of their chart channels, supported fundamentally by disappointing moisture totals in dry areas of the Plains. In fact, dryness in the southwestern Plains led to significant dust storms on consecutive days this week as high winds moved through West Texas. Wheat in the Southern Plains will be coming out of dormancy over the next couple of weeks, increasing moisture needs; at least that wheat that has emerged. However, corn prices remain soft at this hour, with weak exports and soft processor demand suggesting that current year stocks may be trending higher as we head into spring, with increased farmer selling expected as the weather warms. The cash cattle market remains quiet at midday, with action expected to again wait until late Friday as the feeders currently have the leverage as supplies tighten. The trade expects cash prices to be $1 to $2 higher in the south this week, with prices in the north steady to $1 higher.

The U.S. Climate Prediction Center released its summer outlook, which looks good for the Midwest Corn Belt, while the Southern Plains will be hot and the Pacific Northwest may be dealing with both heat and dryness this summer. This forecast fits with the death of La Nina. It appears that the ENSO cycle will be in the neutral phase to start the summer, moving into a warmer El Nino phase later in the summer, although the timing is still uncertain. At the very least, this should be a transition year between La Nina and El Nino, which reduces but does not eliminate drought risks. It would be foolish to guarantee the type of growing season that we will have in the Midwest this summer, but the death of La Nina significantly reduces the odds of a broader drought in the Midwest during the growing season. Rather, we may see talk of excessive wetness through the spring and parts of the summer in the eastern Midwest, and we'll need to watch for high night-time temperatures during pollination, which may be elevated if humidity levels are high. But overall, we have the setup for trend or higher corn and soybean yields after several years of yields being limited.

The summer outlook suggests a good Midwest growing season. SOURCE: NOAA

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