Perspective: Mid-Day Commentary for November 22

By: Arlan Suderman, Chief Commodities Economist

Tue, 22 Nov 2022, 17:27

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

November 22 - Stocks continued to move cautiously higher on positive earnings reports through the first half of the session, with the VIX sliding below 22 to its lowest level since August 26th. The dollar index is taking back a portion of yesterday's gains, trading near 107.4 at midday. Yields on 10-year Treasuries are trading near 3.77%. Crude oil prices are nearly 3% higher on solid denials from Saudi Arabia of rumors that OPEC+ is working on plans to increase output when it meets next month. The grain and oilseed markets are mostly weaker as they drift into the holiday break. Strong soymeal prices supported soybean values on Monday. Today it's been soyoil's turn to provide the support, although the oilseed has traded both sides of unchanged thus far during the session. In fact, corn and wheat also traded both sides of unchanged thus far today, but with a weaker bias overall. There's a longer-term tendency for the grain and oilseed markets to firm between Thanksgiving and Christmas, although there are exceptions to that trend.

Media headlines are focused on blockades in Brazil that could disrupt exports of corn and soybeans. The blockades are created by Bolsonaro supporters who are protesting the results of the latest presidential election, in which Jair Bolsonaro lost his re-election bid by a very narrow margin. One blockade on BR-277 in Parana yesterday blocked traffic from getting to the Paranagua port. That resulted in a line of trucks and other vehicles 13 kilometers long. However, that blockade was removed by police and trucks are flowing again today. That's pretty much been the story to this point. Originally, the police were slow to respond, but that response is improving in removing blockades.

The blockades are currently focused mostly on Mato Grosso, where there are 18 blockades currently - 13 partial and 5 complete that don't allow any vehicles through. Police are working on removing these blockades. This would be a much larger problem if the blockades were happening during peak export season, which will gain momentum in January. As such, this will need to be something that we continue to monitor. Thus far though, we are still seeing enough corn and soybeans get through, combined with what was already at the ports, that our team in Brazil has not seen any slowdown in shipments. In fact, shipments to this point have been stronger than first believed for this time of year, suggesting that export estimates will likely need to be increased for both corn and soybeans in the coming months.

This year's winter wheat crop rates a condition index score of 289 (500=perfect crop), as shown below, which is 20 points below the next lowest score registered in late November of 2012. But note the below graphic that shows the final yields for each year versus its condition index score for this week. The correlation between wheat condition index scores this time of year and final yield is nearly non-existent. That's why the market really is not too concerned at this point. It might be more concerned if wheat shipments out of Ukraine came to a halt, but that doesn't look like it's going to happen with another 120-day extension to the agreement that allows Ukraine to use three of its ports to ship grain. The bigger question is, what will be the condition index score in March, and will drought-stricken areas of the wheat belt be seeing better moisture by then?

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