Perspective: Mid-Day Commentary for March 1

By: Arlan Suderman, Chief Commodities Economist

Wed, 01 Mar 2023, 16:54

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Fertilizer Analyst

March 1 - Early morning strength has faded, with the major stock indexes now in the red at mid-day while the VIX rises to push above 21. Weakness in the dollar continues through the morning, though it has bounced from its low near 104 to trade above 104.3 at the time of writing. Treasuries are rallying, with 10-year yields hovering near the 4% level, while 2-year yields climb to their highest level since 2007 near 4.88%. Crude oil is down slightly, with the nearby WTI contract trading near $76.8, while the ags are mixed.

More negative U.S. manufacturing data was released this morning, with S&P Global's Manufacturing February PMI being revised lower to 47.3 from the preliminary reading of 47.8. Although this was the fourth consecutive monthly contraction, it was still up from January's 46.9 and marks the second monthly improvement in a row. Elsewhere, the Institute for Supply Management (ISM) also released their Manufacturing PMI for February, similarly showing a contractionary reading of 47.7 but improving slightly from the 47.4 seen in January. Same with S&P Global's index, this was the fourth consecutive contractionary reading. One positive takeaway was an improvement in the New Orders subindex, rising to 47 in February from the 42.5 seen in January. Although remaining in contractionary territory for the six month in a row, this was the highest level of new orders seen since November. The Inventories portion of the index fell to 46.9 from the 47.4 the month prior, another positive sign for ramping up production in the future.

U.S. construction spending sank in January by -0.1% from the month prior, down to $1.826 trillion, versus market expectations of a 0.2% increase. December's construction spending was also revised from its previously reported -0.4% month-on-month decline down to -0.7%, making it the sharpest monthly drop in nearly two years. The drop was mostly driven by reductions in public construction expenditures, which were down by -0.6% in January, while private construction spending remained flat from the month prior. The U.S. has now seen drops in construction spending in four of the last six months, the worst such streak since 2018 as the economy continues to show signs of softening.

Fighting continues to intensify around Bakhmut, the eastern Ukrainian city that has been the focal point of this winter's Russian advance. After losing considerable ground through the late summer and fall, Russian forces have regrouped and claimed the battlefield momentum of recent as they slowly advance through the Donbas in an attempt to encircle Bakhmut. However, the turning of the calendar to March brings fresh hope for Ukraine as the ground thaws and the notorious mud season begins to arrive. Logistical issues caused by impassable soil conditions in the spring have impeded invading forces in eastern Europe for decades, and also snarled Russia's initial advance on Ukraine this time last year. The existing Black Sea export corridor is also set to expire this month, meaning the two sides will need to come to an agreement to keep ag products flowing out of Ukraine to the global market. Russia has continued to push to get more out of the deal, such as an emphasis on their own fertilizer exports, specifically ammonia through their pipeline to the Black Sea port of Yuznhy (a.k.a. Pivdennyi), though the damage to Ukrainian energy infrastructure may make this an impossibility. Elsewhere, China's recent peace proposal was met with criticism from both sides and looks to be largely a non-starter. Although we're now over a year into the war, the fighting in Ukraine only looks to escalate further with more western weaponry, including large numbers of tanks, making their way to the Ukrainians in the near future as they prepare for a potential spring advance of their own.

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