Perspective: Morning Commentary for January 12

By: Arlan Suderman, Chief Commodities Economist

Wed, 12 Jan 2022, 14:32

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

January 12 – Inflation is again the hot word on Wall Street, following the release of the December consumer price index this morning, and ahead of tomorrow’s scheduled release of the producer price index. The VIX is trading below 18 this morning, while the dollar index is trading lower below 95.4, setting a fresh eight-week low. Yields on 10-year Treasuries are trading near 1.72% on expectations that the Fed will become more aggressive in its fight against inflation. Crude oil prices are 1% higher, at two-month highs, while the Ags traded mostly lower overnight ahead of today’s scheduled data dump from USDA – the largest of the year for the Ag sector.

Consumer prices jumped 0.5% month-on-month in December, down from the 0.8% gain seen in November, but still above analyst expectations of 0.4%. The CPI rose 7.0% year-on-year in December, up from 6.8% in November, but slightly below analyst expectations of 7.1% inflation. The core CPI that excludes the more volatile food and energy sectors rose 0.6% month-on-month in December, up from analyst expectations that it would remain unchanged at 0.5%. The core CPI was up 5.5% year-on-year in December, up from 4.9% in November and above analyst expectations of 5.4%.

We expected the CPI to benefit from weaker energy prices in December, which fell 0.4% during the month. Yet, many of the other components of inflation remained strong, with some still gaining upward momentum in prices. Food prices for eating at home rose 0.4% month-on-month in December, down from 0.8% gains in November, and down from gains of more than 1% during the previous two months. However, food prices for eating away from home rose 0.6% month-on-month, similar to the previous month, as rising wages and supply chain shortages continue to stress the restaurant sector. New vehicle prices rose another 1.0% month-on-month in December, while used vehicles rose 3.5% on the month. Apparel was up 1.7% in December versus the previous month, while shelter was up 0.4% on the month.

We’ll get inflation data from the producer level tomorrow morning, amid expectations that it will show a headline year-on-year number just below 10%, with much of that inflation still needing to work its way through to the consumer at a time when energy prices are starting to rise again as well. The Federal Reserve meets again in two weeks to discuss revisions to its monetary policy. Inflation is running at its highest level in four decades, while Treasury yields are just above 40-year lows. Interest rates are negative when adjusted for inflation. A fear event could still drive money into the Treasury market, but otherwise, there’s little incentive for a mass shift in money out of the commodities and/or equities into the securities market until we see positive yields again. Kansas City Fed President Esther George spoke yesterday of withdrawing stimulus (shrinking the Fed balance sheet) while raising interest rates, while Fed Chair Jerome Powell was speaking of a go-easy approach in Washington. This will no-doubt make for some spirited debate behind closed doors in two weeks. Withdrawing stimulus would provide a more natural way for raising interest rates to supplement the Fed’s activity, while easing upward pressure on consumer demand if done at the proper speed. What is that proper speed? Nobody really knows. The Fed has created an unprecedented situation that will create some real challenges for navigating its way back to normalcy. This will be one of the key factors to watch that will shape the economy, as well as the marketplace in 2022.

China’s consumer price index rose just 1.5% year-on-year in December, down from 2.3% the previous month, but a big part of that was a 37% decline in pork prices. It’s producer price index, much of which gets exported to Europe and to the United States, was up 10.3% year-on-year in December, although that was lower than the 12.9% rate posted in November. China also reported 221 new Covid cases yesterday, with 166 of them locally transmitted. Tianjin had 33 new cases. You will recall that we stated yesterday that mass testing is being done in this city of 14 million people because the origin of its outbreak is not yet known, meaning the spreading network has not yet been identified. Public transportation to nearby Beijing has been shut down, along with much of the city. Reuters reports that a Toyota plant in Tianjin that has a capacity to produce 620K cars per year has been shut down since Monday due to the citywide testing. Economic activity is definitely being adversely impacted.

Today is a big day for the Ag commodities. USDA’s largest data dump of the year impacting crop and livestock production occurs today. That dramatically increases the risks of surprises in the data. Sometimes those surprises offset one another, while other times they have an additive effect on price movement in one direction or the other, changing the tone of the markets for the next couple of months. For the most part, recent January reports have been calmer, with the trade generally expecting the same this year, although that’s what makes for surprises. The three big keys that I will be watching for will be 1) the scope of South American production changes in this report to set the tone for future reports, 2) potential corn & soybean demand changes on the U.S. balance sheet, and 3) potential surprises in the quarterly grain stocks numbers. All three of these are related, although USDA may not initially make that apparent.

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Mike CastleThu, 06 Aug 2026, 13:24

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Matt ZellerWed, 05 Aug 2026, 12:39

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Mike CastleTue, 04 Aug 2026, 14:58

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