Perspective: Morning Commentary for February 8

February 8 – Stock futures are mixed following the release of this morning’s weekly jobless data that reflected a healthy jobs market, with gains limited by fears that the numbers may delay a cut in interest rates by the Federal Reserve. The VIX, however, continues to trade near 13, reflecting general complacency on Wall Street. The dollar index is trading higher near 104.4 this morning. Yields on 10-year Treasuries firmed to trade near 4.15% following the jobless claim data release, while yields on 2-year Treasuries firmed to trade near 4.45%. Crude oil prices are more than 1% higher after Israel rejected the Hamas offer of a cease-fire, stating that the terms were unacceptable. Grain and oilseed prices are mixed ahead of today’s USDA WASDE crop report, with wheat following world prices lower, led by cheaper prices offered by Russia, while corn and soybean prices posted modest gains on lower production estimates coming out of Brazil.

First time claims for unemployment benefits fell to 218K for the week ending February 3^rd, down from 227K the previous week, and below analyst expectations of 222K. Even so, the four-week moving average rose to 212.25K claims, up from 208.5K the previous week. Continuing claims for the week ending January 27 dropped by 23K to 1.871 million, although the four-week moving average rose by 9,500 to 1.850 million. Last week’s numbers posted a sizeable increase in both the weekly and the continuing claims numbers, while this week’s numbers suggest that the increase may have been an aberration rather than a trend toward a softening jobs market. This week’s numbers still reflect what would be considered a relatively tight jobs market, with a relatively low lay-off rate and a relatively low quit rate. These numbers will not ease concerns of wage inflation among the hawks on the Federal Open Market Committee.

China’s stock market posted its 3^rd consecutive day of gains today, responding to indications that the government is finally taking that country’s economic slide seriously. Much of its response to this point has been to limit short selling, replace leadership of those overseeing trading, and other regulatory changes, rather than to truly make changes needed to jumpstart the economy. Consumer prices posted their largest decline in 14 years in January, dropping 0.8% year-on-year during the month, while producer prices were down 2.5% year-on-year. Chinese authorities hope to see the U.S. Fed cuts rates soon, to give them more opportunity to stimulate their economy.

USDA is scheduled to release its monthly WASDE crop report at Noon Eastern time today. CONAB – Brazil’s version of our USDA – released its monthly report earlier this morning. There are some significant differences between expectations for USDA and what CONAB reported this morning. The market generally trades USDA numbers above CONAB’s numbers, but I’d like to discuss the CONAB numbers anyway, because they still have some relevance.

CONAB pegged Brazil’s soybean crop at 149.4 million metric tons, down from 155.3 mmt the previous month. USDA put the crop at 157 mmt last month, and the average trade guess for today’s report is for USDA to lower that estimate to 153 mmt. Our StoneX Brazil customer survey pegged the crop at 150.35 mmt, so we can’t argue with CONAB’s number too much. USDA probably will not go as low as CONAB today, as it is more conservative than CONAB in making adjustments. It doesn’t like to bounce them back higher later if it overshoots to the downside early. CONAB pegged Brazil’s total-corn crop at 113.7 mmt, down from 117.6 mmt last month, and below USDA’s January estimate of 127 mmt. The average trade guess for today’s USDA estimate is at 124.3 mmt. Our StoneX Brazil customer survey puts the total corn crop at 124.5 mmt, similar to where USDA was at in January.

The biggest difference for CONAB is that it expects farmers there to plant 8% less area to winter corn than what our customer survey shows, with a modestly lower yield as well. CONAB puts the winter corn crop at 88.1 mmt, while our StoneX Brazil customer survey puts it at 96.4 mmt. It comes down to area planted. There are three things that tend to impact winter corn area planted – speed of soybean harvest, moisture availability, and profitability. The soybean harvest is thus far moving at a normal or better pace, allowing for the same for corn planting as well. Moisture availability is generally good as well. Profitability is not good though. One possibility is that we may see more area, but with less fertilizer applied to cut costs. The supply of fertilizer is there for them to use. The question is, will they reduce rates to cut costs, or push for the highest yields possible to boost yield and revenue possibilities?