Perspective: Mid-Day Commentary for November 22

By: Arlan Suderman, Chief Commodities Economist

Wed, 22 Nov 2023, 15:48

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

November 22 - Stocks posted modest gains through much of the morning as traders celebrated lower Treasury yields ahead of the Thanksgiving holiday break. The markets will be closed for Thanksgiving on Thursday, reopening for an anticipated thinly traded short trading session on Friday. The VIX continues to trade either side of 13, reflecting a sense of complacency on Wall Street. The dollar index is trading near 104.1 late morning, rising on the session as the euro loses value in currency trade. Yields on 10-year Treasuries are trading near 4.43%, while yields on 2-year Treasuries are trading near 4.93%. Crude oil prices are trading nearly 5% lower after Sunday's scheduled meeting of OPEC was delayed, raising speculation that the cartel may be losing control of its members and their ability to curtail production. Grain and oilseed prices are mixed. Soybeans are modestly lower after a couple of private estimates calling for record production in Brazil, while wheat got a bounce from a sale to China, helping to support corn as well.

Chinese customs data revealed that China imported 4.8 MMT of soybeans from Brazil in October, accounting for 93% of total monthly imports. The imports from Brazil were more than 2 MMT higher than last year’s 2.8 MMT imported. Soybean imports year-to-date from Brazil through October were 59.7 MMT, up 10.4 MMT higher from the 49.3 MMT imported in the same period last year, accounting for 71% of total imported soybeans. China imported just 228K tons of soybeans from the US in October, down 70.46% year-on-year. Meanwhile, imports from the United States year to date totaled 20.33 MMT, which is flat with last year’s pace of 20.18 MMT. Chinese soybean imports in the first ten months of the year totaled 84 MMT, up 10.82 MMT from last year’s pace of 73.15 MMT. The graphic below shows the dominance of Brazil soybeans in the Chinese market following their bumper harvest early in the year.

The data shows China's clear preference for Brazilian soybeans when given the option. We can blame geopolitical tensions, but Chinese buyers remain price sensitive. That said, currency exchange rates help Brazil keep their prices competitive when they have supplies to ship. But the Panama Canal provides an additional obstacle for U.S. soybean exports from the Gulf this year, raising both costs and delays for soybeans headed to China. The size of this year's Brazil crop will play a role in determining whether U.S. shipments to China can reclaim market share, but Argentina may play an even bigger role. Rains have returned to Argentina following several years of droughts, but the political winds have also dramatically changed with the recent election of Javier Milei, who has promised to unleash the country's agricultural potential by slashing export taxes that have been claiming a third of the crop's value. Argentina has the potential to harvest a 50+ MMT crop in the coming growing season, dramatically increasing both crush and exports that further reduces the need for China to depend on U.S. shipments.

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