Perspective: Mid-Day Commentary for December 13

By: Arlan Suderman, Chief Commodities Economist

Mon, 13 Dec 2021, 16:47

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 13 - Overnight strength evaporated on Wall Street following a report from the United Kingdom that it had its first fatality from the Omicron variant of Covid-19. There's certainly no panic on Wall Street, as the VIX has elevated "merely" to 21 in this morning's trade, but the fatality report raised concerns. That supported a broader sell-off in both the stocks and in the commodities, although some commodities have since recovered and are moving into the green. The dollar index is trading near 96.3 at this hour, while yields on 10-year Treasuries are trading near 1.42%. Crude oil are currently posting modest losses, while wheat prices are beginning to rally. However, both corn and soybean prices are seeing more significant selling pressure, after last week's failure to test overhead resistance. Much of the selling is technical in nature. Feeder cattle demand improved on the cheaper feed prices, while live cattle prices hold modest gains as cash prices slowly erode ahead of the holiday slaughter schedule amid rising supplies, weights and expectations for softer demand until we get into the new calendar year.

USDA inspected 63.3 million bushels of soybeans for export shipment in the week ending December 9, along with 31.9 million bushels of corn, 9.0 million bushels of wheat and 4.7 million bushels of grain sorghum. All of the grain sorghum headed to China, along with 30.9 million bushels of soybeans and 10.8 million bushels of corn. However, marketing year to date corn shipments still fall short of the seasonal pace needed to hit USDA's target by 170 million bushels, and the deficit continues to grow. Meanwhile, marketing year to date soybean shipments exceed the seasonal pace needed to hit USDA's target by 10 million bushels. The primary question is, can we sustain soybean shipments at a high enough pace once cheaper Brazilian beans become available in a few weeks? I'm worried that we will not.

Inflation is the primary focus this week as the Federal Reserve prepares to begin two days of meetings to reassess its monetary policy. Recent statements from Fed Chair Jerome Powell confirmed inflation as a priority for the central bank, as Powell stated that it may need to speed up its tapering schedule. The graphic below shows the U.S. annualized inflation rate poised for a retest of levels not seen since the early 1980s. That doesn't mean that we will repeat the hot inflation of the early '80s, but it does suggest that the current rise in inflation is concerning to policymakers, and to elected officials as well. High inflation makes getting re-elected more challenging, so expect both fiscal and monetary responses to the current inflation problem, although it remains unclear whether Congress understands what to do about it. The first step was acknowledging that we have a problem, which the central bank has finally done. This week's meeting will be the first Fed meeting since Powell's statement that we should "retire transitory" as a word defining current inflation. As such, the broader markets will be parsing Wednesday's revised monetary statement for indications of whether the Fed is turning more or less hawkish than anticipated by Wall Street. Prepare for the possibility of volatile trade Wednesday afternoon and Thursday as a result.

U.S. annualized inflation rate rises to multi-decade highs, grabbing the attention of the Federal Reserve.

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