Perspective: Mid-Day Commentary for November 10

By: Arlan Suderman, Chief Commodities Economist

Wed, 10 Nov 2021, 16:04

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

November 10 - The Dow Jones Industrials are range-bound this morning, just a shade on the low side of level-par at the time of this writing, somewhat tepid in the face of inflation fears, though undeterred in the grand scheme of things as the economy continues to recover and most major U.S. firms posting solid numbers during "Earnings Season". Potential real inflation problems and increased interest rates are still a ways into the future in the eyes of the equities market.

U.S. wholesale business inventories rose 1.4% in the month of September, up from a previously-estimated 1.1% rise and the average analysts' estimate for a 1.1% gain as well; merchant inventories have come back solidly in the last two months to run at some of the strongest post-COVID levels. Inflation remains the main talking point this morning after a +0.9% October CPI reading, more than doubling the September figure and almost double the average trade guess, and that will likely be left as the elephant in the room through the rest of the holiday-inclusive week, with economic data mostly thin through Veteran's Day tomorrow and the end of the week on Friday.

The American Petroleum Institute reported a bullish crude oil draw in its private report yesterday afternoon but the official DOE change was an even million-barrel build this morning, just a hair shy of the expected +1.7 mln bbl gain, with product inventories both down on the week but in line with expectations as well. WTI crude oil has taken some profits this morning but mostly only in a psychological move back down off the $85/bbl mark; prices remain extremely elevated with U.S. oils stocks tight seasonally. Demand is running strong as the economy recovers and President Biden is pushing OPEC to increase production further, as well as talking about releasing oil from the U.S. SPR - which would be only temporarily bearish to the market. Commodities are hot in general heading into the end of 2021 - every sector seems to be having its day at some point - and oil is no different...

DOE weekly fuel ethanol production backed off sharply this week to 1.039 million barrels per day, down from near-record levels at 1.107 mln bpd the week prior, but still well above the comparable week last year at 977k bpd. Cumulative output since September 1 is up to 1.006 million bpd, safely ahead of last year's pace and final figures, though still behind record output years of 2017/18 and 2018/19. Even if total ethanol output can sustain this current pace just over a million bpd through the end of next August (admittedly a long time away), that would indicate corn usage for ethanol at a good solid 50-75 million bushels more than the USDA is currently projecting (itself 50 mbu higher this month at 5.25 bln bu). If production continues on a strong pace in the coming months - which it has no reason not to, given a record corn crop coupled with solid margins - and challenge previous ethanol output records, we could be looking at another 200-300 mbu of corn used above and beyond the working government guess. Corn exports are also running at a double-digit percentage of the seasonal pace needed to meet the USDA estimate. Corn supply is strong but demand is currently even stronger...

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