Perspective: Mid-Day Commentary for November 3

By: Arlan Suderman, Chief Commodities Economist

Fri, 03 Nov 2023, 16:28

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

November 3 - A weak jobs report this morning set the tone for stronger equities, while the dollar followed Treasury yields sharply lower through much of the morning on expectations of a pivot in monetary policy in the first half of next year. The VIX is trading near 15 at midday, while the dollar index is sharply lower near 105.1. Yields on 10-year Treasuries are trading near 4.54%, after probing below 4.5% for the first time since late September. Today's drop comes after yields on 10-year Treasuries traded above 5% just 10 days ago. Yields on 2-year Treasuries are trading near 4.84%. Crude oil prices are 1% lower on demand concerns, while the grain and oilseed sector is mostly higher on the weaker dollar. This morning's break in the dollar injected money into the grain and oilseed sector, helping December corn hold above its September low, and helping January soybeans hit buy stops above overhead chart resistance. Wheat also became more competitive on the world market with the break in the dollar. Now we'll need to watch for signs that the break in the dollar spurred a round of export demand, while also monitoring this weekend's rainfall in Center-West Brazil.

This is an important weekend in the Brazil soybean growing season. I wouldn't call it critical yet, but it is important. The top graphic to the left below shows rainfall from October 1 to now for Center-West Brazil, which you may know primarily as Mato Grosso, along with some surrounding areas. Social media would give you the impression that it's been totally dry through the first month of the growing season. In reality, it has been in some local spots, but not the region as a whole. Similarly, some local spots have seen heavy rains, but that's a bit more rare. Overall, the region has seen nearly 4" of rain, which the top graphic to the right below shows to be one of the drier starts to the growing season over the past four plus decades. The bottom graphic shows the satellite based NDVI scores for Mato Grosso, which are slightly above average for this time of year.

But this was the weekend when the weather pattern was expected to take a turn for the better, with widespread 1 - 3" rains across the region. Previous forecasts for rain systems over the past month have not verified as well as the forecasts indicated, but there was reason to be optimistic that this weekend's event would come through, based on some of the atmospheric signals. However, that all changed overnight when the models shifted notably drier. We still expect widespread thunderstorms through the weekend, but the current thinking is that they will be more scattered in nature, providing less overall coverage than previously anticipated. The week #2 outlook has also turned much drier. That would start raising concerns for the Brazilian crop if that trend continues through the weekend.

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