Perspective: Morning Commentary for November 17

November 17 – Stock futures had an upbeat tone to them heading into this morning’s session, supported by expectations of interest rate cuts as we move into 2024, with Treasury yields setting new lows for the move overnight. The VIX is trading near 14 this morning, while the dollar index is trading near 104.1. Yields on 10-year Treasuries are trading near 4.43%, after setting eight-week lows overnight, while yields on 2-year Treasuries are trading near 4.87%, after coming off overnight 11-week lows. Crude oil prices are recovering at this hour, trading nearly 2% higher on the session, while the grain and oilseed markets were mostly lower.

Housing starts rose to an annualized rate of 1.372 million units in October, up from 1.346 million in September, and above analyst expectations of 1.350 million. Permits for new housing starts rose to an annualized rate of 1.487 million in October, up from 1.471 million the previous month, and above analyst expectations of 1.463 million. We continue to have a shortage of housing in this country, with demand popping whenever consumer confidence jumps.

Home prices in major Chinese cities saw their steepest decline in nearly nine years, according to data released this week, dropping for the fourth straight month in October despite various stimulus efforts by the central government that were designed to boost demand. Home prices in 70 surveyed cities fell 0.4% month-on-month in October, which is their worst performance since a 0.5% decline in February 2015. Meanwhile, the data showed that property sales at the country’s top 100 developers extended a decline by nearly 28% year-on-year in October, reflecting greater challenges for China as it tries to shore up its economy that is heavily dependent on property sales. Low property sales reflect weak consumer confidence in China. The property sector makes up more than one-fifth of China’s gross domestic product, and taxes on property sales provided the needed revenues to finance local government services. Numerous stimulus programs and speeches by government leaders have thus far failed to win the confidence of the consumer sufficiently to bring them back to the property market.

One of the key problems in re-establishing consumer confidence is the sluggish manufacturing sector due to Europe and the United States reducing imports from China as these regions deleverage from their dependency on Chinese goods. We’re seeing now how dependent growth in China’s economy has been over the years on foreign investment and on purchases by European and American consumers of Chinese made goods. Both of those are now in decline, and China is struggling to make the adjustment to right the ship. This puts China in a bit of a dilemma. It wants to stand up to the West – to be seen by the rest of the world as the leader of the new world order. But standing up to the West is precisely what led to the West deleveraging from its dependency on Chinese goods, hurting both its economy and its currency.

The European model pulled back on rainfall totals expected for dry areas of Center-West Brazil in overnight runs, but it still holds on to expectations of widespread soaking rains. Forecasters believe that it still may be too wet, with other models showing lighter amounts, while Commodity Weather Group anticipates that 75% of Brazil’s soybean belt will receive 0.50 to 2.0” of rainfall over the next five days, locally up to 5.0”, with more rains coming in the 6- to 10-day period as well. Will it be enough rain to heal all of the region’s problems? That probably won’t be the case, but the rains are still expected to provide welcome relief for much of the region, while buying the crop more time. The best rain days currently look to be Monday – Tuesday and Friday – Saturday of next week. Obviously, Sunday night’s weather reports and forecast updates are expected to provide guidance for trade next week, but for now, traders continue to take back some weather premium previously put into the market. Forecasters expect heat and dryness to rebuild in Center-West Brazil as we turn the calendar to December, so these rains will be essential.

China crushed just 1.69 mmt of soybeans last week, down from 1.71 mmt the previous week, bringing year-to-date crush to 81.5 mmt. That’s up nearly 6.2 mmt or 8.2% from the previous year’s pace. Yet, soymeal stocks are rising, suggesting that meal demand is even slower than the current crush pace due to some hog liquidation over disease concerns. The slower demand comes at a time when inbound shipments are ramping up, coming from both Brazil and from the United States, which is expected to build up supplies, and eventually curb imports for soybeans other than for building reserves. Soybean imports currently total 84 mmt year-to-date, up 10.8 mmt or 14.7% from the previous year’s pace.