Perspective: Mid-Day Commentary for June 13

By: Arlan Suderman, Chief Commodities Economist

Tue, 13 Jun 2023, 17:01

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

June 13 - Wall Street adopted a cautious "risk-on" sentiment today, following better-than-expected inflation data released this morning via the consumer price index. Core inflation remains sticky, although there are signs in the data of improvement, while declining energy prices helped drive the headline number lower. Wall Street chose to see the proverbial glass as "half full," with money flowing into both the equities and into the commodities in general. We are scheduled to get producer price inflation data released tomorrow, but today's expectation is that the this week's data provides the justification needed for the Federal Reserve to begin an anticipated pause ahead of pivoting to a more dovish policy. Fed fund futures continues to price in expectations of a 25-basis point increase in the Fed's benchmark rate next month, followed by the beginning of rate cuts by the end of the year, although recent data and comments by Fed members suggest that the pause may be much longer than the market anticpates before cuts begin.

The VIX is trading near 15 at midday, with the dollar index lower near 103.2 - a three-week low. Yields on 10-year Treasuries are trading near 3.78%, while yields on 2-year Treasuries are trading near 4.62%. Crude oil prices are 3% higher on the weaker dollar, while the grain and oilseed markets are mostly higher as well. The latter is supported by weaker crop ratings in the Midwest, the weaker dollar, and the two below news stories that broke today, with gains being amplified by momentum trading Algos. Weather and crop ratings will take on increasing importance going forward.

The Biden Administration, negotiating with biofuel advocacy group Growth Energy, filed a court document this morning to delay release of the final biofuel blending quotas for 2023, 2024, and 2025. The Environmental Protection Agency was under court order to release the final requirements by June 14 in a negotiated deal with Growth Energy. However, the court granted it a one week extension today until the end of the day on June 21. The Biden Administration had originally wanted to give RIN credits to electric vehicle producers, which would have diluted the value of RINs, removing stimulus for development of crop based renewable fuels like renewable diesel. However, that plan fell apart in recent weeks, lacking political support, and facing likely court challenges that the plan went beyond the original authority provided by Congress when the Renewable Fuels Standard was passed. Advocacy groups hope that the one week delay will provide an opportunity for the Biden Administration to come out with a plan that provides more support to the crop-based biofuels, although that is yet an unknown.

Russian President Putin made strong statements against renewal of the Ukraine grain initiative at mid-morning today Chicago time. The grain initiative that allows Ukraine to export grain through three approved ports was extended last month until July 17, however, Russia has since blocked movement of ships to the largest of the three ports, and has only allowed an average of roughly 1-1/2 ships per day to the other two ports, which is a fraction of their capacity. Putin stated that the initiative is not for Ukraine, but for countries in Africa and Latin America that are friendly to Russia. He stated that Ukraine has cheated Russia, with nothing done in terms of Russian grain exports liberalisation. That's a bit of a strange statement, considering this year's record pace of wheat exports. Putin stated that Russia is considering withdrawing from the grain deal.

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Perspective: Mid-Day Commentary for August 7

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