Perspective: Mid-Day Commentary for January 13

By: Arlan Suderman, Chief Commodities Economist

Fri, 13 Jan 2023, 18:03

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

January 13 - Stocks are drifting as we approach midday, as traders balance earnings reports with longer-term economic worries and China's reopening attempts. The VIX though is trading near 18 at this hour, which is its lowest level since a year ago on this date, suggesting an overall easing of Wall Street worries. The dollar index is trading near 102.2 after setting a fresh seven-month low, while yields on 10-year Treasuries are trading near 3.48%. Crude oil prices are nearly 2% higher, while the grain and oilseed markets are mixed to firmer.

Grain and oilseed prices had an overall positive response to Thursday's set of USDA reports that showed corn, soybean and wheat stocks at relatively tight levels with more risks ahead. Wheat was the skeptical market initially, with such a large 11% increase in U.S. winter wheat acreage, but traders eventually jumped on the positive tailwinds from the other markets. Those tailwinds became a bit more choppy overnight into this morning, although soybeans continue to be the leader to the upside. Nonetheless, the conviction of the bulls is lacking somewhat ahead of a three-day holiday weekend, with the U.S. markets closed on Monday.

Soybean traders are largely focused on Argentina's drought, which is indeed intense. Forecast models continue to show increasing chances of showers in the last half of this month, but confidence is not high. The Rosario Grain Exchange captured the market's attention yesterday when it lowered its Argentine production estimate to 37 million metric tons. USDA lowered its estimate to 45.5 mmt on Thursday. The Buenos Aires Grain Exchange called for another 3% drop in acreage planted to soybeans due to the lingering drought, with production falling to 41 mmt. I illustrated in my webinar on Thursday that there is a path that this market can travel that would see Brazilian soybeans fill the gap in Argentina, without U.S. exports being impacted, even with a 37 mmt crop in Argentina. I stated that this path may not be the one that we travel, but it is possible due to the largeness of the Brazilian crop. Of course, it's also possible that we could see Argentina's crop fall below 37 mmt, at which time U.S. tight stocks could be threatened.

The consumer sentiment index rose to 64.6 in today's preliminary January reading, according to the University of Michigan, up from 59.7 in December and above analyst expectations of 60.0. Current assessments of personal finances rose 16% to eight month highs on perceptions of rising incomes and easing inflation pressures. Consumers indicated that their short-term economic outlook is a bit weaker than it was in December, but their longer-run outlook rose 7% to nine-month highs and it now sits "just" 17% below its historical average. Year-ahead inflation expectations at 4% continue to trend lower for the fourth consecutive month, with the current reading now the lowest since April 2021. Traders think this will influence the Federal Reserve to pivot its monetary policy.

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