Perspective: Mid-Day Commentary for October 10

By: Arlan Suderman, Chief Commodities Economist

Tue, 10 Oct 2023, 15:56

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

October 10 - Wall Street has moved on from the Israeli war for now. Traders are assuming that it will remain focused on the Gaza Strip, reducing the impact on stocks and/or commodities. They will remain focused on the headlines emerging from the Middle East for signs that the above has changed, but for now, they're going to assume that the conflict remains contained. As such, traders are currently focused on comments from various members of the Federal Reserve that have a dovish tone to them, resulting in modest strength in stocks, while commodity prices pull back. The VIX is trading below 17 as we approach midday, reflecting those easing concerns. The dollar index is trading at an 11-day low near 105.8. Yields on 10-year Treasuries are trading near 4.63%, while yields on 2-year Treasuries are trading near 4.95%. Crude oil prices are modestly weaker at midday, while grain and oilseed prices are mixed.

Wheat prices posted double-digit losses as world prices continue to trend lower following the trend of Black Sea prices. An increasing supply of ships is moving through Ukraine's humanitarian corridor to move grain and other products. Russia remains focused on attacks on Ukraine's port structure, which is reducing port capacity, but it has not stopped the flow of grain. Shippers are growing increasingly confident in their ability to move in and out of ports, recognizing that their greatest vulnerability is probably while they're actually loading cargo in the port if the facility is bombed while the ship is moored. Nonetheless, grain is moving, and so Russia is allowing prices to fall to hang onto market share dominance, leading to a drop in world prices. That weighs on corn prices as well, with traders increasingly comfortable that this year's U.S. crop will be large enough to supply expected softer demand over the year ahead. The lead November soybean contract slipped to a fresh four-month low earlier in the session, before uncovering buying that lifted prices on the risk that USDA could cut production by more than expected in its WASDE crop report on Thursday. The soybean balance sheet remains tight, with little margin for error. It is expected to have enough room to cover anticipated weak export demand in the year ahead, but traders still hold concerns of a potential bullish surprise in USDA's production estimate on Thursday, providing somewhat of a floor under the market until traders have the chance to see Thursday's numbers.

USDA inspected 60.4 million bushels of soybeans for export shipment in the week ending October 5, as shown below, along with 21.7 million bushels of corn, 14.5 million bushels of wheat and 2.2 million bushels of milo. The portion of the above that was destined for China included 52.0 million bushels of soybeans, 2.8 million bushels of corn, 0.05 million bushels of wheat and 2.2 million bushels of milo. The soybean number is very encouraging, representing the highest weekly total shipped to all destinations in eight months, but there remains questions about whether we can sustain the pace needed to hit USDA's current target considering the large amount of South American soybeans that China has booked for shipment over the next 60 days. I'll have more on that in tomorrow morning's commentary. However, the corn, wheat and milo shipments were below seasonal levels needed to hit USDA's targets, reflecting vulnerability to a reduction in those targets on Thursday.

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