October 30 – Stock futures were again mixed overnight, with the market barely responding to this morning’s data release. The VIX continues to trade just below 20 this morning, while the dollar index trades near 104.4, after rallying on this morning’s jobs data. Yields on 10-year Treasuries are trading near 4.23%, providing the impetus for that stronger dollar, while yields on 2-year Treasuries are trading near 4.12%. Crude oil prices are 2% higher on reports that OPEC+ could delay its anticipated December output hike, while the grain and oilseed markets were quietly mixed overnight.
The U.S. economy grew at an annualized rate of 2.8% in the third quarter of this year, down a bit from the 3.0% growth seen in the second quarter, and down from analyst expectations that we would sustain 3.0% growth into the third quarter as well. But 2.8% growth is by no means an indicator of a recession, which is defined by consecutive quarters of negative growth. Personal consumption expenditures grew at an annual rate of 3.7% in the third quarter, which is up from 2.8% in the second quarter, and it is well above the 3.0% expected by analysts. Combining this with yesterday’s consumer confidence index survey data, it suggests that the consumer is increasingly comfortable with spending money. That’s not an environment in which you want to be too aggressive in cutting interest rates.
Today’s ADP employment report revealed that the private sector created 233K jobs in October, which was more than double the 115K anticipated by analysts. Furthermore, the previous month’s total was revised to 159K, up from the 143K originally reported. This is a strong private sector jobs report in the wake of two major hurricanes that provided a major disruption of business in the Southeast. One has to wonder how strong the numbers would have been if the hurricanes had not hit. The market has priced in expectations that Friday’s monthly jobs report from the government will show total jobs created at 125K, down from 254K the previous month. This raises speculation that we could see a strong report on Friday as well, although the correlation between the two reports is relatively weak. Nonetheless, a strong jobs report on Friday following two major hurricanes would likely lead members of the Federal Open Market Committee to think twice about being too aggressive with rate cuts when they meet next week.
The U.S. liquid biofuel program survives primarily on a system that subsidizes its production. That’s especially true for biodiesel, renewable diesel and sustainable aviation fuel. Soyoil is a primary feedstock for biodiesel, aided by a $1 per gallon credit. Under the so-called Inflation Reduction Act, that is replaced by 45Z credits on January 1 that are based on how much the feedstock / production process reduces carbon emissions, but the standards have not yet been released and may not be for some time. As such, biofuel producers are putting off soyoil purchases until next year, and some are considering a total shutdown, reducing demand for soybeans.
A lot of rumors are coming out of China this week regarding the import of soybeans. Our sources indicate that the General Administration of Customs announced at a meeting that they would require an extension of customs clearance times for three products, including barley, sorghum, and soybeans (regardless of origin). We already were well aware of China’s efforts to slow imports of barley and sorghum in order to support local prices following a big domestic harvest. Some suggest that soybeans were included in the list for the same reason, although domestically grown soybeans are primarily non-GMO soybeans grown for food versus the imported soybeans that are crushed for animal feed and oil. Regardless, rumors in China hint that some ports have issued orders putting a minimum one-month hold on customer clearance of these commodities.
One thing that we do know is that there is a lot of confusion within China over these directives, and that has led to many rumors spreading globally about China’s objective regarding soybeans. This may simply be due to port congestion following an aggressive import program from Brazil and Argentina this year that built up supplies. Some have speculated that recent active buying by crushers (40+ cargoes per week over the past several weeks) was panic buying fearing a Trump win in next week’s election that could result in tariffs, but Donald Trump wouldn’t even take office before January 20th when China would have access to ample supplies of new crop Brazilian supplies. Some have speculated that this is all about trying to get crushers to draw down bloated state reserves, but that’s not the way the system works either. In reality, what makes most sense is that port congestion likely created the situation, and authorities are trying to slow the inflow to allow that congestion to clear. More significantly, it slows the inflow at a time when the United States needs to ship as many soybeans as possible before cheaper new crop Brazilian supplies become available in another 60 – 90 days. We’ll continue to monitor the situation within China, but there’s nothing bullish for U.S. soybeans about this development.
