Perspective: Mid-Day Commentary for January 19

By: Arlan Suderman, Chief Commodities Economist

Thu, 19 Jan 2023, 17:24

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

January 19 - Stocks are notably lower again today as recession fears mount again. The VIX is trading a bit higher near 21 today, although that gives no indication of panic on Wall Street. The dollar index is trading near 102.2, while yields on 10-year Treasuries are trading near 3.41%. Crude oil prices are nearly 2% higher on an anticipated rebound in China's economy, while grain and oilseed prices are mixed. Soybeans posted double-digit losses today as weather maps turn wetter in Argentina starting this weekend. Wheat prices are modestly higher in a technical bounce, with corn prices quietly mixed at midday. The cash cattle market remains quiet this morning, with the protein complex under general pressure along with the financial markets today. Cattle traders though have their eyes on tomorrow's USDA cattle-on-feed report, that is expected to show placements at 91.5% of year ago levels, January 1 on-feed numbers at 96.8% of year ago levels and December marketings at 94.7% of the previous year due to one less business day this year.

China continues to show signs of bouncing back quickly from its current Covid outbreak after three years of restrictions that saw consumers staying home and spending less. As such, the Chinese consumer is anxious to spend money now that things are opening again. It's estimated that household excess savings from three years of restrictions total 6.6 trillion yuan ($825 billion), according to today's edition of China Direct published by our Shanghai office. That should support a significant wave of consumer spending in the weeks and months ahead. In fact, sales of health and nutritional products rose 400% month-on-month in the first half of January, while dishwasher sales were up 325% year-on-year and HD TV sales were up 190%. Even floor cleaning products rose by 56% in January. This rebound in travel and spending is expected to contribute to nearly a million-barrel-per-day increase in crude oil consumption this year, and that may prove to be conservative. There's also an expectation that we'll see increased demand for meat again as restaurant business picks up. There will be hiccups in the recovery as waves of Covid variants move through the population. The variant dominant in China currently is different from what's in Europe and the United States. As such, there will likely be some rough patches in the recovery, but overall it looks like a fairly robust economic recovery for China this year, which will be good for commodity demand and for the global economy.

U.S. commercial crude oil stocks (excluding the Strategic Petroleum Reserve) rose by another 8.4 million barrels in the week ending January 13, putting them roughly 3% above levels typically seen in mid-January. Gasoline stocks rose by 3.5 million barrels, but they remain 8% below the five-year average for the date. Distillate stocks fell by 1.9 million barrels last week, putting them 20% below seasonal levels as heating oil demand combines with diesel demand to keep these supplies tight, and they may get tighter in the months ahead. Ethanol production took a hit in recent weeks due to weather problems in the Midwest, but it is starting to bounce back currently, even though demand is soft. Ethanol production rose to 1,008K barrels per day in the week ending January 13, up from 943K the previous week and up from 844K bpd the week prior to that, but production was still below the 1,053K bpd produced in the same week last year. Even so, ethanol stocks slipped to 23.4 million barrels last week, down from 23.8 million the previous week and down from 23.6 million in the same week last year. The production of ethanol utilized an estimated 101.6 million bushels of corn last week, up from 95.0 million the previous week, but down from 107.0 million in the same week last year. Estimated marketing year to date corn use for ethanol totals an even 1.900 billion bushels, down 129 million or 6.4% from the previous year's pace, and down more than 25 million from the seasonal pace needed to hit USDA's target due to those weather problems last month.

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