December 15 – Wall Street is relatively quiet as we prepare to close out the week, with much of the Fed’s latest actions now priced into the market. The VIX continues to trade near 12 – a historical low level by any measure. The dollar rebounded to trade near 102.4 this morning as Treasury yields bounced as well following this week’s sharp decline. Yields on 10-year Treasuries are trading near 3.94%, which is well over 100 basis points below the October high, while yields on 2-year Treasuries are trading near 4.43%. The bounce in the dollar took some of the steam out of the commodity recovery as well, with crude oil prices only modestly higher this morning, while the grain and oilseed complex is quietly mixed to lower, lacking any fresh fundamentals to support higher prices at this point, while the longer-term them of commodity deflation remains entrenched for now.
Ukraine grain exports reached 2.2 million metric tons in the first half of December, bringing the 2023/24 marketing year total to 15.289 mmt, down from 19.959 mmt in the same period last year. However, the month-to-date shipments exceed the year ago total of 2.1 mmt, so some progress is occurring. Marketing year to date shipments include 6.5 mmt of wheat, 7.7 mmt of corn, and 0.9 mmt of barley. Ships are moving through Ukraine’s humanitarian channel to keep grain flowing, even as Russia continues to strike Ukraine’s port facilities. Farmer blockades continues to slow overland shipments across the border to the west, but the European Union remains committed to keeping both of these export channels open. Europe is committed to keeping Ukraine agriculture breathing, and that means keeping the flow of exports going. European Union leaders released a statement yesterday that the economic bloc is committed to facilitating the export of Ukrainian grain and other Ag products. As such, it committed funds to repairing damaged port infrastructure in Ukraine, while also working with border countries to find a solution for keeping grain flowing across the border to facilitate the movement of grain.
Part of that commitment includes considering Ukraine membership into the European Union, which “feels” like the right thing to do for a group of countries who still remember the threats from the East presented in World War II. But will that actually occur? Reuters did an in-depth analysis on this question that was insightful, revealing the details of an internal EU study done in July. That study said that membership would authorize Ukraine to get 96.5 billion euros ($106 billion) in aid under the bloc’s Common Agriculture Policy over seven years, and another 61 billion euros under the EU’s cohesion policy, aimed at equalizing living standards throughout the economic bloc. In total, Ukraine would be eligible to get 186.3 billion euro in the seven-year budget, meaning that many countries that are now net recipients of EU funds would become net contributors, while other current net contributors would have to pay even more. Ukraine has an estimated 41 million hectares of arable land, compared to 30 million in France. Becoming a member would necessitate the free movement of all agricultural products across the border into Europe, swamping markets and increasing the backlash of farmers in other European countries. Acceptance of Ukraine’s membership application would also make the EU’s labor market open to millions of lower paid Ukrainian workers, similar to what happened when Poland was added to the bloc. That’s part of what led to the eventual exit of Britain from the EU. Membership would also necessitate that members pay up for defending Ukraine’s security “by all means in their power,” increasing the financial obligation on them. This question of membership will likely draw out for years.
The soybean market was quiet overnight, with the bulls lacking hard evidence that this year’s adverse weather has resulted in a crop short enough to justify rationing U.S. demand with higher prices, but enough uncertainty and challenges ahead to keep the bears at bay as well. The primary focus remains on Center-West Brazil as much of the soybean crop in that area goes through the critical pod fill phase of development, with high temperatures running 95 – 105°F, while rainfall amounts remain scattered, uneven, and roughly 40 – 50% of normal levels for December. There certainly are localized areas of total crop failure, but there are also areas where crop production remains quite good – where they were fortunate to get enough rain. One of the factors that stood out to me while doing some digging yesterday was that atmospheric moisture levels (i.e. humidity levels) near the surface remained high in recent weeks, despite the lower rainfall totals. That may have helped reduce crop stress below levels that we might have otherwise expected, limiting the scope of losses. That may help explain why most private production estimates, including our StoneX Brazil customer survey, continue to be above levels that we would anticipate, given the extreme weather conditions. StoneX Brazil will again be surveying customers as we turn the calendar, and I anticipate that the survey’s numbers will continue to decline. But thus far, we still lack evidence that it will decline enough to justify rationing U.S. demand with higher prices. The next few weeks will determine that. This morning’s models show very good moisture for the region five to 10-days out. Now we need to see if that rain will move forward in the forecast and verify this time, after failing to do so many times in the past.
