November 21 – Stock futures pushed higher overnight, despite a lackluster earnings report from Nvidia late on Wednesday. The VIX initially traded to nearly 18 overnight, but it has since fallen back to trade near 16 this morning. The dollar index remains strong this morning near 106.7. Yields on 10-year Treasuries are trading near 4.39%, while yields on 2-year Treasuries are trading near 4.31%, with both pulling back following the release of this morning’s economic data. Crude oil prices are nearly 2% higher in early trade, while the grain and oilseed markets are mixed.
First-time claims for unemployment benefits fell to 213K in the week ending November 16, down from 219K the previous week, and below analyst expectations of 219K. The four-week moving average for claims fell to 217.75K, down from 221.5K the previous week. Continuing Claims for the week ending November 9 jumped by 36K to 1.908 million, which is its highest level since November 13, 2021, when it was 1.974 million. The four-week moving average for continuing claims rose by 5K to 1.879 million. In this case, the rise in continuing claims likely reflects the permanent loss of jobs created by the devastation of two hurricanes in the Southeast earlier this fall.
The Philadelphia Fed manufacturing index fell to -5.5 this month, down from 10.3 in October, and below analyst expectations of 7.0. A negative number indicates month-on-month contraction in the sector. The subindices for new orders and shipments both declined in the Philadelphia region this month, although they remained positive. The employment index actually turned positive this month, suggesting an increase in employment overall. Both prices indices indicated overall price increases. Despite the negative headline index, surveyed firms continue to expect growth over the next six months, with growth expectations more widespread this month.
The war between Russia and Ukraine continues to escalate, ratcheting up risks for commodities emerging from the Black Sea Region. First, we saw President Joe Biden give permission over the weekend for Ukraine to use weapons manufactured in the United States to strike deep inside of Russia. Ukraine used that permission to fire U.S. made missiles into the Bryansk region of Russia on day 1,000 of the war. It followed that with the firing of British made missiles into the Kursk region the following day. Now Russia has responded by firing an intercontinental ballistic missile at Dnipro in Ukraine. It was the first time ever for any war for Russia to fire an ICBM designed to carry a nuclear warhead. Obviously, no nuclear warhead was involved in this firing, but Russian President Vladimir Putin is trying to create fear. This missile was believed to be an RS-26 Rubezh with a range of 3,600 miles, although it traveled 435 miles in this case. The missile is 40 feet in length, weighing approximately 36 tons. It’s an expensive missile to use, further suggesting that its use had more to do with sending a message than anything else. The markets do not expect Putin to fire nuclear weapons upwind of Moscow, but they are more concerned that this ratcheting up of the war could eventually result in increased risk for civilian ships carrying commodities in the Black Sea, as both sides have the ability to attack them in this tit-for-tat war. Both sides appear to be ratcheting things up to gain as much advantage as possible before Trump becomes president on January 20th. He promised during the campaign that he would quickly bring an end to the war. Observers assume that means that he will force them into peace talks, so both sides want to gain leverage ahead of those talks.
China signed 37 agreements with Brazil on Wednesday, covering a multitude of issues, including trade, infrastructure, agriculture, and many other factors. The one that stood out to me as most significant to U.S. agriculture was an agreement to accept grain sorghum imports from Brazil. Grain sorghum doesn’t get much attention from the markets, but it’s a major feed grain commodity grown in the U.S. Plains. USDA estimates that we produced 321 million bushels of grain sorghum this year – most of it in the U.S. Plains where it is a good rotation crop with wheat in an area with an arid climate. The grain can be fed to livestock, used to produce ethanol, or exported. USDA expects us to export 220 million bushels – roughly two-thirds of this year’s crop – during the current marketing year, which is down from 239 million bushels the previous year. Most of our exports go to China, where buyers can import it with fewer restrictions than what is on corn shipments. Brazil produced 173 million bushels last year – doubling in the past few years. Ana Luiza Lodi in our Brazil office tells me that Brazil exported 4.5 million bushels thus far in this calendar year, up from 1.3 million the previous year. It’s primarily grown as a winter crop behind harvested soybeans, which means that it has the opportunity to rapidly expand acreage. This crop is a vital component to the U.S. Plains Ag economy, but it may soon find Brazil removing its profitability by taking its export market away from it. Like corn and soybeans, Brazil’s cheap currency gives it a price advantage for grain sorghum when competing with the strong U.S. dollar. The Plains farmer may continue to grow it, lacking significant other options, putting more of the grain sorghum into the feed/ethanol stream to displace corn in the years ahead.
