Perspective: Morning Commentary for December 30

By: Arlan Suderman, Chief Commodities Economist

Fri, 30 Dec 2022, 14:29

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

December 30 – It’s the final trading day of 2022, with stock futures under modest pressure going into this morning’s opening bell. Many traders will be happy to close the books on 2022 – a year that saw stocks slide as the Federal Reserve drove interest rates higher to tame inflation that rose to 40-year highs before the central bank realized that they were not transitory. However, traders also have many concerns for 2023. Most don’t believe the economy is at the bottom yet, with the Fed still driving interest rates higher, but they anticipate that bottom to come at some point in the year ahead – some earlier and some later. The stock market is a futures trading market. It drove stocks lower before the economy turned lower in anticipation of lower earnings, and it will be expected to do the opposite when traders feel like we’re approaching peak interest rates, with easing pressures ahead.

It’s all about closing out the calendar year today. Stocks start the day weaker, but the focus will really be on turning the page to a new calendar year over the weekend. The VIX is again trading near 22 this morning, while the dollar index is trading near 103.8. Yields on 10-year Treasuries are trading near 3.86%, while yields on 2-year Treasuries are trading near 4.41%. Crude oil prices are weaker along with stocks this morning, while the grain and oilseed markets were mixed in early trade on this final trading day of the year.

Covid-19 continues to spread across China, but traders have their eyes on some of the early hot spots to see how quickly they come out of the outbreak. That can provide an indication of how the nation as a whole should emerge from three years of lockdowns and restrictions. Keep in mind that consumers have been saving their money over the past three years of restrictions, making them anxious to spend money on many of the items and experiences that they’ve put off since 2019. Beijing – on of the first hotspots in this outbreak – may provide some indication of such. It’s interesting to note, as told in this morning’s China Direct published by our Shanghai office, that ticket reservations at Universal Beijing Resort are four times higher than the previous week as people recover from the virus. VariFlight data shows that daily flights from Beijing, Shanghai, and Chengdu to the tourism hotspot Sanya for the New Year’s Day holiday are at pre-pandemic levels already. Some of the more desired restaurants in Beijing are booked to capacity for New Year’s Eve dinner. The initial expectation was that China would see a significant rebound in its economy in the last half of 2023. That then moved up to the second quarter of the coming year. It could come even earlier, but that’s still going to depend on how the virus impacts much of the rest of the country, including the rural elderly with poor healthcare. Either way, China’s rebound will be one of the big stories to follow in the commodity markets in 2023. The recovery may be rough at times, but it is coming.

China’s recovery is expected to lead to one of the other big stories to follow in 2023 – a rebound in energy demand. WTI crude oil prices topped $130 after the Russian invasion of Ukraine on fears of supply shortages, but prices are below $80 per barrel as we start this final trading day of the year due to worries about crumbling demand. Sanctions are reducing Russian output, and OPEC+ finds it difficult to even meet their current output quotas. We saw nice gains in U.S. shale oil output over the past couple of years, largely due to the completion of wells started prior to the pandemic. But future expansion would need to come from increased investment in the U.S. fossil industry, and the current political climate simply doesn’t encourage that. It takes time to turn that environment around. The Strategic Petroleum Reserve is half of what it once was, leaving us very little buffer when/if supply shortages develop. Meanwhile, 2023 is set up to possibly be the year of the big rebound in global demand, with China leading the way. Beyond China, we will need to watch for when we see peak interest rates here in the States and in Europe, but I wouldn’t be surprised at all by the development of significant energy shortages developing in 2023. Related to that, I expect to see Russia look for a way out of the Ukraine war in a way that allows it to declare victory in 2023. That could combine with the rebound in China to create a wave of demand for commodities.

Grain and oilseed production should benefit in 2023 from an anticipated flip from the La Nina weather pattern of the past several years to an El Nino weather pattern. It’s not unusual at all for the pattern to flip to El Nino following a strong La Nina, and the models now project increasing odds for that to happen over the next several months. That typically bodes well for Midwest crop production overall, while also improving growing conditions in the U.S. Plains. However, it does raise risks for key areas of Brazil’s safrinha corn growing region as the monsoon rains shift to the south. This will be something to monitor as we move into March and April.

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Morning Grain Comments 8-5

Morning Grain Market Comments - Matt Zeller

Matt ZellerWed, 05 Aug 2026, 11:54

Grains & Oilseeds

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