Perspective: Mid-Day Commentary for April 26

By: Arlan Suderman, Chief Commodities Economist

Tue, 26 Apr 2022, 16:12

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

April 26 - The tech sector led the sell-off on Wall Street today, as traders brace for earnings reports from big-tech firms this week, fearing what they may say about inflation, China lockdowns, and anticipated Fed monetary policy. The VIX rallied back above 31 by midday, reflecting elevated fear levels on Wall Street. The rise correlated with commodity traders backing down a bit in their earlier buying interest, although most Ag and Energy commodities remain in the green at this hour. The dollar index posted a fresh two-year high above 102.2, while yields on 10-year Treasuries fell to 2.72% as money flowed into the safe-haven assets, with gold higher as well. Crude oil prices are trading roughly 3% higher, while the Ags were mostly higher as well.

Wheat prices led the way higher overnight following yesterday afternoon's USDA crop data. More on that later. Prices pulled back some when Stats Canada reported a 7.2% increase in wheat acreage this year, although support continues to come from the poor winter wheat ratings in the Plains. We saw more soybeans sold to China over the past 24 hours, but the oilseed complex continues to garner its greatest support from Indonesia's ban on cooking oils - most notably of RBD palm olein. It's ban was modified to allow export of crude palm oil yesterday, but that only accounts for roughly 15% of the palm oil exports. It's yet unknown how many weeks the ban will remain in place, or what changes may be made to the ban in the days and weeks ahead, but we do know that this further tightens the global edible oil supply. Global supplies of soybeans can begin to build over the coming year if the United States has a good growing season followed by more expansion of area in Brazil next year, but those are still two big uncertainties. Corn prices continue to consolidate just below contract highs amid expectations that Brazil's production will ratchet lower next month due to current dryness, combined with increased weather risks here in the States for the growing season.

Freezer stocks of beef are at a nine-year high, and they are up 54% year-on-year. Friday's cattle-on-feed report also showed that 150K more cattle were placed in March than was expected by the trade. Yet, this week's early cash trade has largely been steady with the previous week thus far, providing support for live cattle futures. Meanwhile, lean hog futures traders slashed the big premium of June hogs to the cash index in half in recent days, bringing it more in line with historical levels for this time of year. Futures also felt the pressure of a big drop in cutout values from Monday.

USDA reported Monday afternoon that just 27% of the U.S. winter wheat crop rates Good to Excellent, down 3 points on the week and down 5 points over the past two weeks. The industry norm of following the percent of the crop rated Good to Excellent typically does a pretty good job of communicating yield expectations, but there are exceptions. Those exceptions come in years like the current one, when there is a lot of movement in the portion of the crop rated Fair, Poor and Very Poor. For example, 39% of the winter wheat crop is rated Poor to Very Poor currently, up two points on the week. As such, this is one of those years when I like to look at the crop's condition index score, which takes all five categories into consideration. This week's winter wheat condition index score is 271, as shown in the graphic below, down 6 points on the week. In fact, the graphic below shows that only the 1996 crop (270) boasted a lower score in the same week of the year in the 35 years that USDA has posted ratings. The condition index score for the hard red winter wheat crop specifically is 266, which is a record low for this point in the season.

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