Perspective: Mid-Day Commentary for December 10

By: Arlan Suderman, Chief Commodities Economist

Fri, 10 Dec 2021, 17:11

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 10 - Early strength waned in the stock market, as traders digest what this morning's strong inflation data might mean for policymakers when the Fed meets next Tuesday and Wednesday. The VIX is trading near 19 at midday, while the dollar index is trading near 96.0. Yields on 10-year Treasuries are trading near 1.47%. Early gains in the crude oil market are slowly eroding away as well, while the Ags are still mostly higher. Corn prices turned lower on profit taking, as traders were reluctant to test nearby overhead chart resistance. Soyoil also remains weak in light of this week's RVOs released by the EPA that punished biodiesel producers. The wheat charts are weak, but end user buying is robust. Soymeal and soybean demand is firm today. This week's cash cattle trade was mostly $140 per cwt.

Consumer sentiment is a key factor for inflation forecasts. The consumer continues to have money in hand, largely due to unprecedented fiscal and monetary stimulus over the past two years. The consumer is concerned about inflation, but still has the money to spend, keeping upward pressure on inflation. Last month's consumer sentiment index produced by the University of Michigan saw a surprising drop to decade lows. The November survey revealed that consumers still wanted to spend money through the holidays, but they were growing reluctant beyond that due to rising concerns about inflation. Today's release of the initial results from the December survey showed a rebound to 70.4 for the index, up from analyst expectations that it would remain unchanged just above 67. Yet, that is still more than 10 points below year ago levels when the pandemic was strong. Ironically, the December survey was biased by a massive 23.6% gain in sentiment for those whose incomes are in the lowest third of the distribution - second only to a 29.2% gain in June 1980. Sentiment declined in the other income brackets.

It's dry in the Plains hard red winter wheat belt. The first graphic below shows rainfall as a percent of normal for the hard red winter wheat belt since October 1st, while the second graphic shows the same since November 1st. In other words, the trend is drier as this La Nina pattern digs in for the Plains. In fact, the rainfall totals received across the belt since November 1st essentially tie 2017 as the driest of the past four decades, with 1989 being the next closest year. That does not mean that we are assured of a short harvest next summer, but it does increase the risks of such. The largest influencer of yield for the winter wheat crop is spring moisture. Looking at the analog years, the bias is still for below normal rainfall through the March to May period across the southern winter wheat belt, although portions of the central and northern Plains could see normal to above normal precipitation. As such, it is still very possible that we will harvest a good crop next summer. Yet, these risks matter more in a world that has tight supplies of quality milling wheat, which is currently the case. Most of these Plains states that are significant wheat producers release monthly crop ratings for their crop through the winter, which warrant watching.

Rainfall since October 1 as a % of normal (left) & since November 1 (right). SOURCE: Commodity Weather Group

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