Perspective: Mid-Day Commentary for May 9

By: Arlan Suderman, Chief Commodities Economist

Tue, 09 May 2023, 16:55

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 9 - Today's focus on the debt ceiling talks combined with poor earnings forecasts to weigh on stocks this morning, with commodity prices following a similar pattern. Traders are also being cautious ahead of this week's anticipated inflation data. The VIX is trading near 18, which is off last week's low of 15.5, but it's still relatively low overall. The dollar index is trading near 101.7, while yields on 10-year Treasuries are trading near 3.53%. Crude oil prices are 1% lower, while the grain and oilseed markets are mixed to lower as well. Corn is taking the biggest hit in that sector this morning, following another cancellation of previous purchases by China this morning. That leads to fears that USDA will again cut its corn export forecast, despite the small Argentine crop. Soybean prices are also under pressure this morning, with traders fearing that USDA will print larger stocks on their 2023-24 balance sheets for both of the row crops on Friday.

The same fear adds to weakness for Chicago soft red winter wheat, with additional pressure coming from reports that Russia is again allowing ships to move through the safe corridor allowed for exporting Ukraine grain. On the other hand, the hard wheats still find support, despite the headwinds. Just 24% of the spring wheat crop was planted as of Sunday, down from the five-year average of 38%. Just 10% of North Dakota and 7% of Minnesota spring wheat was planted, down from 27% and 34% normally. Further south, the hard red winter wheat crop continued to deteriorate from Oklahoma north through South Dakota over the past week. The trade is waking up to the reality that this year's hard red winter wheat crop will be short, despite the surge in planted acres.

A drier overall weather pattern has dominated much of the central part of the country since March 1st, as shown in the left graphic below, but that is changing. The northern Red River Valley continues to be wet, although flood waters are receding, as this year's major snowpack melted, followed by a period of showers. However, much of the Plains and western Midwest have been dry overall, with that dryness also pressing east of the Mississippi River. The graphic on the right shows a multi-model look at anticipated rainfall over the next five days. It suggests that the flow of moisture from the Gulf of Mexico up through the Plains will be strong over in the days ahead. That is expected to bring much-needed moisture to much of the central and Southern Plains, although the moisture is not needed currently in the Northern Plains. Note that roughly a quarter of the hard red winter wheat focused on Kansas and parts of Colorado and Oklahoma largely miss out on this moisture. However, this week's rains are also expected to bring decent moisture to many central and eastern Midwest fields. That will be key, because the pattern then is expected to shift drier again for much of the Midwest, including the Northern Plains, to allow fieldwork to resume. There is still risk of prevent plant acres in the northern Red River Valley, but crops are otherwise expected to get a good start, with corn and soybean planting overall running ahead of normal at this point.

Several key economic reports will impact Wall Street this week. We're scheduled to get April consumer price index data tomorrow morning, followed by producer price index data on Thursday morning. That will be followed by consumer sentiment data on Friday. The Cleveland Fed's inflation model shows a resurgence of core inflation in April that thus far lingers into May. The Fed may consider that reason enough to further boost interest rates this year, although tightening credit policies by regional banks may buy the Fed time to monitor the situation. Nonetheless, this week's reports will continue to leave the markets vulnerable to headline risk as we go through the week.

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