November 29 - Wall Street pushed stocks modestly higher on rate cut hopes throughout much of the morning, although the strength of the gains waned somewhat as we went through the session. The VIX continues to trade near multi-year lows, reflecting a growing confidence that the economy can have a soft landing in 2024, with the Fed expected to cut rates by mid-year, even though it continues to insist that will not be the case. The dollar index is trading near 102.8 at midday. Yields on 10-year Treasuries are trading near 4.30% at midday, after dipping to a 10-week low near 4.25% earlier in the session. Yields on 2-year Treasuries are trading near 4.67%, after falling to a 19-week low below 4.61% earlier in the session. Crude oil prices are rising again today, up another 1%+ at midday, despite a lack of clarity on whether we'll see more production cuts from OPEC+ when they eventually meet. The grain and oilseed markets are mixed to higher.
Two things stand out to me as I look at the grain and oilseed markets today. First, the July corn contract is trading at roughly a 47-cent carry / premium to the December contract. That typically means that supplies exceed demand, and so the market is offering to pay for storage to keep that corn off the market. In other words, the market is currently saying that we are over-supplied with corn. The other thing I see is another day of big double-digit gains for Kansas City wheat. We recently saw wheat prices fall to fresh multi-year lows on reports that China asked France to delay shipments of wheat it had previously purchased. Now there is unconfirmed chatter in the cash market that China may be shopping for hard red winter wheat. Regardless, the funds appear to be liquidating short positions at these price levels, just in case this is finally the bottom, although we've been here many times before. Meanwhile, soybeans are waiting for more clarity on the Brazil crop.
U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) rose by 1.6 million to 449.7 million barrels in the week ending November 24, leaving us slightly above the five-year average for this time of the year. Gasoline stocks increased by 1.8 million barrels during the week, putting them 2% below seasonal levels. Distillate stocks rose by 5.2 million barrels, leaving them 11% below levels typically seen at this time of year. Ethanol stocks slipped to 21.4 million barrels in the week ending November 24, down from 21.7 million the previous week, and down from 22.9 million barrels in the same week last year. Ethanol production dropped to 1,011K barrels per day last week, down from 1,023K bpd the previous week, and down from 1,018K bpd in the same week last year. The production of ethanol utilized an estimated 100.6 million bushels of corn last week, down from 101.8 million the previous week, and down from 103.2 million bushels in the same week last year. Estimated marketing year to date corn use for ethanol totals 1.238 billion bushels, up 32 million or 2.7% from the previous year's pace.
Ethanol margins remain profitable, although we've seen some slippage in co-product values recently. Even so, we've seen a downturn in production over the past couple of weeks. Keep in mind that many plants are said to report what they ship, rather than necessarily what they produce. Thursday was a holiday, so therefore few rail cars would have been loaded, leading to a reduction of "production" as they report it. The previous week's reduction looks to be related to an assortment of reasons, varying from operations issues to some difficulty originating corn. Plants have been bumping basis offers to get corn, but resellers are holding tight, while the farmer definitely is not in a selling mood at current price levels either.
