January 24 - We saw a bit of "risk-on" sentiment on Wall Street today, as positive money flow lifted both the commodity and the equity sectors amid Chinese stimulus, positive earnings, and a dollar that followed Treasury yields lower, although both have since come off those lows. This morning's purchasing managers index data came in a bit better than expected as well, for both manufacturing and the services sector, suggesting growth in both areas in January. The VIX traded below 13 throughout the morning amid the optimism. Meanwhile the dollar index fell notably lower below 102.8 before recovering to trade near 103.1 at midday. Yields on 10-year Treasuries are trading near 4.14%, while yields on 2-year Treasuries are trading near 4.36%, as they come off their session lows to push higher again. Crude oil prices tested four-week highs above $75 per barrel, while the grain and oilseed markets pushed higher as well.
Friday's CFTC commitment of traders report revealed that the speculative hedge funds built near-record large short positions across the grain and oilseed complex. That made both end users and speculators nervous with prices oversold and at current low levels, leading to some end user pricing and speculative profit taking. The momentum-trading Algos amplified the move in wheat, giving it double-digit gains, which are starting to test some overhead chart resistance areas. Fundamentally, little has changed, but money flow is supporting the complex mid-week. We see a bit more focus on tightening quality wheat supplies, even though overall wheat supplies remain ample. This month's cold weather has also increased feed demand as we have to make up for lost weight in cattle during the period, although consumption declined during the outbreak. But the greater factor supporting the grain and oilseed complex is largely the above money flow dynamics that I outlined.
Crude oil stocks fell 9.2 million to 420.7 million barrels in the week ending January 19 as bitter cold temperatures in our nation's mid-section reduced pipeline capacity, while also altering output and demand dynamics, putting supplies at roughly 5% below levels typically seen in mid-January. Gasoline supplies increased by 4.9 million barrels as driving declined during the severe winter weather, putting them 1% above the five-year average for the week. Distillate supplies dropped by 1.4 million barrels, leaving them 4% below seasonal levels.
The mid-January winter weather also had a big impact on the ethanol industry, reducing output to just 818K barrels per day, the lowest since the big Arctic outbreak in February 2021 when it fell to 658K bpd, down from 1,054K bpd the previous week, and below the 1,012K bpd rate in the same week last year. Yet, ethanol stocks ticked higher to 25.8 million barrels due to decreased blending and lower gasoline demand during the winter outbreak, which is up from 25.7 million barrels the previous week, but only modestly above the 25.1 million barrels the previous year. The production of ethanol utilized just 83.5 million bushels of corn last week, as shown below, down from 107.6 million the previous week, and down from 100.8 million the previous year. That brings estimated marketing year to date corn use for ethanol to 2.099 billion bushels, up 109 million or 5.5% from the previous year's pace, and still 70 million bushels above the seasonal pace needed to hit USDA's current ethanol target. History tells us that it will likely take a couple of weeks for production to bounce back to more seasonal levels - maybe halfway back in next week's data and then the rest of the way back the following week.
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