Perspective: Morning Commentary for October 12

By: Arlan Suderman, Chief Commodities Economist

Tue, 12 Oct 2021, 13:21

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

October 12 – Stocks were mixed overnight as Wall Street prepares for earnings season to start. Roughly 47% of the financials will report third quarter earnings this week, providing traders with a plethora of data to provide direction. They’ll be looking for the usual numbers in those reports, but they will also be focused on statements indicating problems with supply chain disruptions, as well as inflationary pressures. We’ll also get inflation data at the consumer level tomorrow, at the wholesale level on Thursday and retail sales data on Friday. The VIX is trading near 19 this morning, reflecting relative calm on Wall Street. The dollar index continues to consolidate near 94.4 this morning, making new one-year highs, while yields on 10-year Treasuries trade near 1.60%, after reaching a new four-month high near 1.63% earlier in the session. Crude oil prices are lower this morning after hitting fresh seven-year highs yesterday, while the Ags are mixed to weaker ahead of today’s big USDA WASDE crop report.

The small business optimism index fell one point to 99.1 for September, which was slightly below analyst expectations of 99.5. The survey, conducted by the National Federation of Independent Businesses, includes 10 categories. The September survey saw three of those categories improve, while five declined and two remained unchanged. The survey’s uncertainty index rose 5 points to 74. Owners expecting business conditions to improve over the next six months fell another 5 points to negative 33%. Fifty-one percent of survey respondents reported job openings they were unable to fill, which is a new record high for the third consecutive month. Forty-two percent of respondents indicated that they had increased compensation, which is a 48-year high. NFIB Chief Economist Bill Dunkelberg stated, “The outlook for economic policy is not encouraging to owners, as lawmakers shift to talks about tax increases and additional regulations.”

Chinese coal prices rose the daily limit today, which was another 11% higher. Coal futures prices have doubled in the past 33 trading sessions, as outlined in today’s China Direct from our Shanghai office. The NDRC finally acted today to allow power companies to pass along some of the higher prices needed to cover higher feedstock prices, which should start to make more power available to industry, including soybean crushing facilities. Improving weather also should allow for more coal production to come back online. Recent excessive rains damaged the corn crop in Shanxi province, leading the government to reduce the size of this year’s crop by 850K metric tons. Yet, the crop is still expected to be 10.3 mmt larger than last year’s crop due to the greater area planted to corn this year. Shanxi province accounts for 3.6% of China’s overall corn production. Hog prices continued to bounce today, although the fundamentals remain weak for the hog sector.

Today’s USDA export inspection report is expected to show a surge in soybean shipments, now that most facilities at the ports of New Orleans are operational. The ports are operating as close to 24/7 as labor shortages will allow them to operate to catch up with shipments after Hurricane Ida damaged infrastructure at the end of August. Those soybean shipments will take a little over a month to reach Chinese ports, where they may find additional delays due to port congestion. Chinese soybean stocks at crushing facilities are currently at 5.6 million metric tons, down 18% year-on-year. October receipts are expected to total 6 mmt, which means that stocks are expected to continue to decline over the coming month. Crush margins for those arriving receipts continue to be positive, to a great extent driven by demand for oil.

USDA is scheduled to release its monthly WASDE crop report at 11 a.m. CDT today. There are two numbers that are of greatest interest to me. The first is the updated U.S. soybean yield. Various industry surveys have shown expectations for a half-bushel increase in USDA’s yield estimate. Anecdotal reports suggest the possibility of a much larger increase, but anecdotal reports can also be biased. As such, I’ll be more comfortable, as well much of the trade, once we see USDA’s number later today. Enough of the harvest is now behind us that the industry should be comfortable with the size of the crop once we get past today’s report. The second number I’m watching is one that probably won’t change much today, but it could – USDA’s 2021-22 soybean export target. Shipments got a slow start this year due to damage at the ports of New Orleans, but the greater threat to the target is the poor hog feeding margins in China. China’s annual usage estimate may not change much, but the portion of that demand that comes from the United States may change, resulting in reduced U.S. exports. The third number I’ll be looking for is the updated U.S. corn yield, which is expected to turn lower due to lower-than-expected yields east of the Mississippi.

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