November 27 – Stock futures were modestly lower overnight as we come out of the biggest shopping weekend of the year, with traders searching for clues on future monetary policy two weeks ahead of the next Federal Reserve meeting. The VIX is trading near 13 this morning, reflecting relative calm on Wall Street, while the dollar index is trading near 103.3. Yields on 10-year Treasuries are trading near 4.45%, while yields on 2-year Treasuries are trading near 4.95%. Crude oil prices are again modestly lower on demand concerns, while the grain and oilseed markets traded mixed overnight.
A spike in respiratory infections is creating a stir in China, with few answers from authorities. The infections appear to be impacting the young more significantly, focused on 5- to 14-year-old children. The World Health Organization urged Beijing to provide more details about the outbreak last week, but data remains slow to emerge. Clinics and hospitals in Beijing and other northern cities have been reported full since October, with some parents waiting for days to get their sick children in to see a doctor. The current infection rate remains much higher than what one would expect for the seasonal flu, but China’s CDC says that the new infections are not a product of a Covid-19 variant. Nonetheless, cases continue to rise across the country, with some localities and hospitals said to be running tight on medical resources to deal with record-high patient numbers. We still lack evidence to suggest that this will develop into another national health emergency, but we will continue to monitor it.
The European Union pledged 50 million euros to rebuild port infrastructure damaged by Russian missile and drone attacks as it seeks to keep grain moving out of Ukraine. We also saw commitments from Ukraine for military escorts for grain carrying ships to ensure their safety. Ukraine has an agreement with Great Britain to subsidize insurance coverage for the ships, to go along with support from Bulgaria, Romania, and Turkey for keeping the grain corridor functioning. Furthermore, Ukraine hopes to ship up to 4 mmt via its rail corridor through Moldova and Romania.
The dry season is about to begin in Panama, with water levels on Gatun Lake expected to start the new year near record low levels. Rains typically do not increase again until May, suggesting that transit of grain through the Panama Canal will be challenging for at least another six months, reducing shipments from Gulf ports to critical customers in Southeast Asia, including China. The number of reservation slots for movement through the Canal are expected to continue to ratchet down in the weeks ahead until just 18 will be available per day by February. Fees are required for booking a slot ahead of time, or a ship can seek a reservation slot via the auction process, with slots going for $2 to $4 million. The bottom line is that moving grain through the Panama Canal is grinding to a halt, with other ships better able to compete for those slots. That means grain shipments from the Gulf moving towards customers in Southeast Asia must either take the longer route through the Suez Canal or around the Cape of Good Hope. The Suez Canal route adds 7 – 9 days to the route, while going around the southern tip of Africa adds up to 25 days. Those lengthier routes also come with added costs. Buyers will pay the costs if they’re in need and no other options are available, but Brazil currently still has supplies of corn and soybeans available to ship, while China also continues to pull corn from Ukraine as well. China made a large purchase of U.S. soybeans earlier this month, just ahead of Xi Jinping’s meeting with Joe Biden, but we have yet to see when/if those soybeans will be shipped, which also may hinge on the anticipated size of Brazil’s next crop, which is currently being grown.
Forecasts for Center-West Brazil remain frustrating for farmers in the region, with just scattered thunderstorms to provide relief for those fortunate enough to be underneath of one of them. Weather models continue to show good rains a week out, with today’s outlook wetter than what we saw on Friday, but those rains don’t seem to move forward in the forecast. It’s not totally dry for the region as a whole, although some pockets remain quite dry. There are areas of good production, with areas of dying crops not far away. We’ll get a better look at the overall crop when StoneX Brazil releases its monthly customer survey results on Friday morning, revealing the latest production estimate for Brazil as a whole, as well as for the various states within the country. A couple of other private sources called for record crops last week, dampening the expectations of soybean bulls, but there’s still much to be learned about the crop in the weeks ahead. Meanwhile, we’ve seen a very favorable shift in the weather pattern from that of the past several years for Argentina, where production is currently expected to return to “normal” for soybeans, although corn acreage may be down as farmers shift to soybeans.
