Perspective: Mid-Day Commentary for September 28

By: Arlan Suderman, Chief Commodities Economist

Wed, 28 Sep 2022, 16:44

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 28 - Stocks again rebounded this morning after both the dollar and Treasury yields reversed after hitting new highs. Yet, the VIX remains elevated above 31 at this hour, indicating that fear levels remain high on Wall Street. Meanwhile, traders are also monitoring Hurricane Ian, which is poised to come on land just north of Fort Myers, Florida. It is expected to cross Florida into the Atlantic before coming back on land somewhere near South Carolina. The dollar index is trading near 113.2 at this hour, while yields on 10-year Treasuries are trading near 3.77%, which is 25 full basis points below its session high. Crude oil prices are nearly 4% higher, while the Ags are mixed at midday.

Positive money flow from the outside markets provided tailwinds for the commodity sector, but the high VIX led traders to use caution in building ownership, while being selective in what they bought. Wheat prices led the Ags higher, with Ukraine risks remaining high. Russia continues to hold a nuclear threat over Ukraine, which would negatively impact wheat storage and production in the affected area, while risks are also growing that Russia will shut down the "safe corridor" agreement that allows grain to move out of three southern Ukraine ports. Corn supplies would also be negatively impacted by the above. However, soybean prices today succumbed to weaker-than-normal export demand combined with seasonal harvest pressure. Growing conditions in Brazil overall are excellent for the start of its growing season. The protein complex was largely under pressure at midday, as a strong dollar hurts export demand, with packer margins contracting notably for both pork and beef.

Ethanol stocks rose slightly to 22.7 million barrels in the week ending September 23, up from 22.5 million the previous week, and up from 20.2 million barrels in the same week last year. Ethanol production fell to a 19-month low 855K barrels per day during the week, down from 901K the previous week, and down from 914K barrels per day in the same week last year. The production of ethanol utilized an estimated 84.2 million bushels of corn during the week, down from 88.7 million the previous week, and down from 92.7 million the previous year.

Hurricane Ian is just offshore of central Florida's west coast at this hour, preparing to cross the peninsula to move into the Atlantic Ocean, before coming back onshore again likely somewhere in South Carolina on Friday. This takes it across four of Florida's five highest producing citrus counties, while staying to the south and east of Florida's major phosphate fertilizer production. That production can still be negatively impacted by power loss and heavy rains, but we'll have to wait until crews assess the damage before we know how long production will be down. The impact on citrus may be multi-year, depending on the level of damage to trees. Ian is expected to travel to the east of primary cotton growing areas with this track, but it is expected to impact roughly 5% of the nation's soybean production.

Hurricane Ian's anticipated wind field by Friday (left), & accumulated rainfall (right). SOURCE: Commodity Weather Group & Storm Vista

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