Perspective: Mid-Day Commentary for May 10

By: Arlan Suderman, Chief Commodities Economist

Tue, 10 May 2022, 17:09

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 10 - Stocks tried to bounce overnight, but they struggled to sustain that strength as we progressed through the morning. Federal Reserve members continue to speak to their efforts to tame inflation. U.S. Treasury Secretary Janet Yellen - once Chair of the Fed herself - also stated that the Fed is aggressively working to fight inflation. President Biden addressed America from the White House today, claiming to have the best plan for fighting inflation by attacking companies engaged in price gouging. Yes, that was his primary mentioned strategy. None of it convinced Wall Street that leaders on either the fiscal or monetary policy side a) understand the dynamics of the inflation problem, or b) understand how to control the problem. Yes, the Ukraine war is a contributor, as is the China lockdowns due to Covid, but the primary factor keeping fear (as measured by the VIX) high on Wall Street currently is the lack of confidence that policy makers understand the inflation problem, or that they know what to do about it.

As such, stocks have been in a steady decline from this morning's open. The VIX spent most of the morning trading between 34 and 35. Commodities typically struggle to sustain a rally when the VIX is above 30 unless they have a strong immediate story. The dollar index is trading near 103.8, which is just below yesterday's 19-year high. That too creates headwinds for the commodity sector. Yields on 10-year Treasuries are trading near 2.95%, which is 25 basis points below yesterday's 3-1/2-year high. Crude oil prices are more than 3% lower at midday due to fears of economic slowdown. Both the cattle and hog markets are again under pressure for similar reasons, as consumers pull back from purchases of the higher cuts of meat. However, the grain and oilseed sector is rebounding today, for the most part.

Wheat prices led today gains in the grain and oilseed sector. The Plains hard red winter wheat belt is drying out once again, due to this week's dry hot winds. Spring wheat planting remains at a standstill in Minnesota and North Dakota, as well as some surrounding areas. Dryness remains a concern for Argentina and Europe as well, while shipments out of Ukraine are very slow due to the war. Corn and soybean planting is expected to be quite active in the eastern third of the Midwest this week. It should also be active in the central third of the belt, although there will be areas of interruption due to showers. Little progress is expected this week in much of the Dakotas and in Minnesota. That may continue to be the case through much of the month, where we may see up to 2 million or more acres of prevent plant corn, with additional prevent plant for spring wheat. Neither crop can afford to lose acres this year, but that's the direction that we are currently heading. Twenty percent of this year's intended corn acres are in Minnesota and in the Dakotas. Corn planting progress as of Sunday stood at 1% in North Dakota, 9% in Minnesota and 11% in South Dakota. The other 80% of the belt should see good progress this week, but the models call for normal to above-normal rainfall in the region in week #2 of the forecast with milder temperatures returning to slow drying as well. I'm not "gloom and doom" on this other 80%. I think that most of it will get planted, although some of it will likely be planted in less than desirable conditions. Yet, my greater concern is for the northwestern belt as circled below. Corn acreage has really migrated into this region over the past 15 years, and this is a year when every acre is needed.

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