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Perspective: Mid-Day Commentary for October 25

By: Arlan Suderman, Chief Commodities Economist

Perspective: Mid-Day Commentary
 
Arlan Suderman
Chief Commodities Economist

October 25 - Stocks continue to struggle at midday, as traders fret about the negative effects of high interest rates, while also expressing concerns about soft earnings reports. The VIX is trading just below 20 at midday, while the dollar index is trading near 106.3. Yields on 10-year Treasuries are trading near 4.91% as they rally once again following two days of coming under pressure, while yields on 2-year Treasuries are trading near 5.09%. Crude oil prices are modestly higher, while the grain and oilseed sector is mostly lower. Soymeal futures reversed lower after hitting new highs for the move earlier in the session, providing a drag for soybean prices as well, joining the bearish tone that continues to provide headwinds for the broader grain sector as traders worry about soft demand.

Ethanol stocks rose to 21.4 million barrels in the week ending October 20, up from 21.1 million the previous week, but down from 22.3 million barrels the previous year. Ethanol production rose to 1,040K barrels per day during the week, up from 1,035K bpd the previous week, and slightly above the 1,033K bpd the previous year. The production of ethanol utilized an estimated 100.6 million bushels of corn last week, up from 100.1 million the previous week, but down from 103.7 million bushels last year.

Center-West Brazil needs to receive rain for the newly planted soybean crop in the days ahead, not to mention to provide moisture for finishing planting. Our team in Brazil tells us that they're not worried about the crop yet, considering the rain that is in the forecast in the days to come, but concerns will start to mount if those rains fail to verify. This isn't anything new for Brazil. It's part of the transition between a very dry season from late April through much of September transitioning into a quite wet rainy season the remainder of the year. The graphic below provides some context. For those of us in the United States more accustomed to inches of rain, note that Mato Grosso in Center-West Brazil essentially gets zero rainfall in July and August, with very little in the months around that period. The five-year average in October is close to 4.7", ramping up to 6.9" in November and over 9.0" of rainfall for December. Yes, the soils are more porous in this region, but that's considerably more rain than needed to raise a soybean crop. Be wary of forecast maps showing a lot of brown colors signifying below-normal rainfall over the next three months, considering how large "normal" is for this region. Farmers there can grow a good soybean crop on 70% of normal rainfall, or even 50% of normal rainfall, depending on temperatures and the timeliness of the rains. That doesn't mean that we won't have problems with the soybean crop in Center-West Brazil this year. The risks are higher this year than normal. But rather it says that we just can't assume yet that there will be a short crop in Brazil.

 

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