Perspective: Morning Commentary for November 20

November 20 – A subdued tone hangs over Wall Street as we begin trade on this holiday-shortened week. The markets will be closed Thursday for the Thanksgiving holiday, with lighter volume on a partial day of trade on Friday. The VIX is trading near 14 at this hour, reflecting relatively low levels of fear on Wall Street, while the dollar index trades near 103.7, as it trades at its lowest level today since September 1^st. Yields on 10-year Treasuries are trading near 4.46%, while yields on 2-year Treasuries are trading near 4.90%. Crude oil prices are rebounding again this morning from last week’s collapse amid talk that OPEC+ may add to its production cuts, trading 2% higher, while the grain and oilseed markets are trading mixed.

China is again working on its “Peacekeeper” label. China first took on this challenge after Russia shocked the world with its invasion of Ukraine in 2022. It stepped in with offers to broker peace, and a proposed peace plan to end the war. The plan was largely rejected by Russian President Putin, despite the fact that it laid much of the blame for the war on the United States. Nonetheless, the peace plan fit President Xi Jinping’s plan of presenting China as an alternative to the United States as being the world’s primary peacekeeper. Another war is at hand, this time in the Middle East, and China is again offering to broker peace. It successfully brought Iran and Saudi Arabia to the peace table earlier this year, and now it is bringing a delegation of foreign ministers from Arab and Muslim countries to China to discuss a peace plan for the Middle East, including Saudi Arabia, Egypt, Jordon, and Indonesia. It’s yet to be seen if it will be successful this time, but the fact that it is now seen as a leader in the BRIC coalition, which many of these nations are now seeking to join, already denotes a change in geopolitical alignment.

Argentina’s libertarian President-Elect Javier Milei shocked the world when he won a runoff presidential election over the weekend, ousting the two primary parties that have been battling over Argentina’s future for decades, while the nation slipped deeper and deeper into economic turmoil. Milei won the election with 56% of the popular vote, including support from young people eager for a change, but also with widespread support from production agriculture. Argentina has tremendous agricultural potential, but that potential is held down by aggressive taxes policy used to pay for its extensive social programs.

Milei is pledging shock therapy for its economy that includes shutting down Argentina’s central bank, ditching the peso in favor of the U.S. dollar, slashing spending, and other potentially painful reforms to lift his country out of an economic pit. The job won’t be easy. He’ll need to build a coalition within the country’s legislature to pass these reforms, while dealing with empty coffers and a $44 billion debt program with the International Monetary Fund that is on the cusp of default, along with nearly 150% inflation. His reforms could dramatically impact grain trade in the years ahead, along with exports of lithium and hydrocarbons. Milei has been very critical of both Brazil and China, while a friend of the United States. This will be a country to watch closely with significant long-term implications for the grain and oilseed markets, in addition to many other geopolitical implications.

The rains are starting in Center-West Brazil. Widespread relief is starting to arrive in parched areas of Center-West Brazil with 0.50” to 2.0”, locally up to 6.0”, expected across 80% of the soybean belt, with northeastern areas expected to be most at risk of missing out. Another round of rains is expected late week before a drier week #2 outlook. However, much of the guidance is trying to bring rains back again in the 11- to 15-day period. That’s the forecast. Reality is, that weekend rains were very scattered and insufficient to end the drought in these northern crop production areas. Some areas are getting very good rains, while a short distance away they still have not received rains for the past 30 days, with the crop dying in extreme heat. Conditions are very irregular in Center-West Brazil, making it difficult get an accurate assessment of the crop. This fact will likely continue to keep support beneath the market until we can get more hard data to trade. Our next opportunity to do so will be our StoneX Brazil’s next customer survey the first of December. That will by no means answer all of the questions about Brazil’s crop, but it will provide some direction. Until then, look for this market to continue to trade weather forecasts and rainfall reports. My analysis of historical production patterns in similar years that I outlined here last week also provides some parameters for what the possibilities are going forward. Soybeans found support this morning from reports out of Brazil, which also supported corn prices, but corn and wheat currently need help to sustain rallies.