Perspective: Mid-Day Commentary for February 22

By: Arlan Suderman, Chief Commodities Economist

Thu, 22 Feb 2024, 16:52

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

February 22 - Stocks pushed higher this morning, led by the tech sector, following yesterday's strong earnings report from Nvidia. However, traders also took note of better than expected existing home sales and better than expected manufacturing activity, which could add to inflationary pressures going forward. The VIX is trading near 14 as we approach midday, while the dollar index is trading near 104.0. Yields on 10-year Treasuries are trading near 4.33%, while yields on 2-year Treasuries are trading near 4.71%. Crude oil prices are modestly higher at midday, while the grain and oilseed sector is mixed. Wheat prices continue to be supported by a firming cash market at current price levels, while corn and soybean futures are struggling amid big supplies.

Both corn and soybean spot futures traded to fresh three-year lows today, continuing the slide as farmer sales remain very slow. We're starting to see a modest pick up in country movement as temperatures warm and farmers move grain to generate cash for making rent and equipment payments, as well as to move corn that may have gone in the bin a bit wetter than desired. Warmer temperatures mean that corn needs to move before it goes out of condition. The farmer is undersold relative to normal for both corn and soybeans in both Brazil and in the United States. Good data doesn't exist for the United States, but Brazil farmer selling is at its lowest level of the past five or six years for both corn and soybeans, meaning that farmers on both sides of the equator are searching for a flat price rally to move grain, but they're not getting it.

Existing home sales rose to an annualized rate of 4.00 million in January, up from an upwardly revised 3.88 million the previous month, and above analyst expectations of 3.97 million. Existing home sales are still down 1.7% from the previous year's level, but up 3.1% month-on-month, reflecting improving sentiment. Meanwhile, the PMI manufacturing index came in at 51.5 (anything above 50 indicates month-on-month growth), up from analyst expectations of 50.1, and above the highest trade guess. The services index came in at 51.3, down from expectations of 52.0, but still showing modest growth. These numbers supported a brief decline in Treasury yields, before a return to pre-report levels.

U.S. crude oil inventories (excluding the Strategic Petroleum Reserve) rose by 3.5 million to 443.0 million barrels in the week ending February 16. That brings commercial stocks up to 2% below the five-year average for mid-February. Gasoline stocks fell by 0.3 million barrels, leaving them also 2% below levels typically seen in mid-February. Distillate stocks dropped by 4.0 million barrels, putting them roughly 10% below seasonal levels. Ethanol stocks slipped slightly to 25.5 million barrels in the week ending February 16, down from 25.8 million barrels the previous week, and just below the 25.6 million barrels seen in the same week last year. Ethanol production rose to 1,084K barrels per day in the week ending February 16, up from 1,083K bpd the previous week, and up from 1,029K bpd the previous year. The production of ethanol utilized an estimated 109.5 million bushels of corn during the week, as shown below, up slightly from 109.4 million bushels the previous week, and up from 101.2 million bushels in the same week last year. Estimated marketing year to date corn use for the production of ethanol totals 2.518 billion bushels, up 126 million bushels or 5.3% from the previous year's pace, and more than 80 million bushels above the seasonal pace needed to hit USDA's target for the marketing year. Cheap corn buys demand.

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