Perspective: Morning Commentary for October 27

By: Arlan Suderman, Chief Commodities Economist

Wed, 27 Oct 2021, 13:27

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

October 27 – Stocks are poised to build on their record run this morning, fed by strong third quarter earnings, albeit with some caution ahead of next week’s Federal Reserve meeting. The VIX is trading near 16 this morning, indicating that fear levels are relatively low on Wall Street. The dollar index is trading near 93.8, while yields on 10-year Treasuries are trading near 1.57%. We’re seeing a risk-off move in the global commodity markets this morning, led by a decline in China. Crude oil prices are off roughly 2% this morning, while the Ags are mostly lower as well.

Durable goods orders were down 0.4% month-on-month in September, while the August durable goods orders data was revised lower to show 1.3% growth, versus the 1.8% growth originally reported. Nonetheless, today’s headline number was better than analyst expectations that orders would be down by 0.9%. Durable goods orders minus transportation were up 0.4% month-on-month in September, versus trade expectations of 0.5% growth and versus 0.3% growth the previous month. Core durable goods orders, which represents business investment closely followed by the Federal Reserve, were up 0.8% month-on-month in September, which was double analyst expectations of 0.4% growth and up from 0.6% growth the previous month.

“The 1970s All Over Again? Stagflation Debate Splits Wall Street.” That was the headline from Reuters this morning, highlighting worries among investors about rising inflation risks amid slowing economic growth. This provides the backdrop for next week’s meeting of the Federal Reserves monetary policy committee, which is seen as critical for reassuring investors that the central bank adequately understands the risks, and that it has a plan to successfully manage those risks. Inflation rates are still just half the rates seen at the end of the 1970s, but many investors do not like the direction in which we are heading.

Investors fear that the Fed will be too slow to act, allowing rates to get out of control, as they did more than forty years ago, when the consumer price index rose to a staggering 13.5% year-on-year pace. That necessitated Paul Volker’s Fed to raise interest rates to nearly 20% to bring inflation back under control. That wasn’t good for anybody, but it was perhaps what was necessary to fix the problem. There’s a big divide on Wall Street over whether we are moving towards a repeat of the 70s stagflation, with well-respected people on both sides of the argument. Yet, the point of the article is that “stagflation” is one of the most frequently heard words now among investors, indicating the significance of next week’s Fed meeting. Investors need reassurance next week from the Fed. It is a meeting in which the Fed cannot afford a misstep in its communication with the investment world.

Commodity inflation is a big part of the inflation story that is, to a great extent, separate from the supply chain disruption argument, although there is some overlap. A look at year-on-year changes for commodities finds that oats leads the way, up 128% from the previous year, followed by a 119% increase in heating oil as we approach the heating season. Crude oil is up 111% year-on-year, while natural gas is up 86%. Let’s not overlook coffee, which is up 93%, soybean oil up 82%, canola up 80%, cotton up 50% and lumber is still up 45% year-on-year, even though it is down 62% from its high May high.

Today’s China Direct, from our Shanghai office, notes that 50 new Covid cases were reported today, with the latest reports presenting some risks to the soybean crush industry. Regionalized lockdowns are expanding as China tries to eradicate this latest outbreak of Covid-19. There are now several new cases and transmission of Covid-19 in Rizhao, Shandong, which is a major soybean import and crushing hub. The lockdowns to stop the spread of Covid could reduce soybean demand, particularly if the spread is not quickly brought under control. Authorities have already locked down one area outside of Rizhao, prohibiting residents from leaving, with most things being shut down. China’s zero-tolerance policy has been successful at controlling Covid-19 to this point, but it has come at quite a cost, with that cost impacting much of the rest of the world as well.

Broad-based selling emerged in the commodity sector overnight. It’s yet to be seen if the sell-off will have staying power in the day session. The story to this point has been end user and investor buying of the dips in the commodity market, fearing even higher prices in the future as inflation ramps up. That will change at some point, but the breaks have been bought thus far. Midwest harvest progress slows dramatically this week, with increased risk of field loss.

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Perspective: Morning Commentary for August 7

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Mike CastleThu, 06 Aug 2026, 13:24

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August 5 – The Dow Jones is ripping higher for yet another session, up safely over 500 points at the time of this writing to carve out another record high; the S&P and NASDAQ are a bit less enthusiastic but the former is still making its own record high, while the latter is less than 500 points off its own top thanks to a strong ongoing week of trade. The dollar is churning lower this morning in an effort to re-test Monday’s 1 ½-month low, while the ten-year note has flipped higher in the mid-morning hours. The CME FedWatch tool interesting has market odds of a quarter-point rate hike next month coming closer to a 50-50 proposition as crude oil prices decline.

Mike CastleWed, 05 Aug 2026, 15:19

Grains & Oilseeds

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