Written Commentary
SOYBEANS
A lower start to the week for beans, following Friday’s meltdown in the metals markets and risk-off tone, left a black eye across many markets and shifted the edge to the bears over the near term. Advancing bean harvest in Brazil, which stands at 10% complete, will be a strong headwind this month.
SOYBEAN MEAL
Soymeal pulled back late last week amid significant weakness across the commodity space.
CORN
There is minor pressure on corn this morning from sharp weakness in crude oil and a modest rally in the US dollar. This week, traders will be looking to gauge demand as prices pull back to areas where significant global buying was the feature over the last 2 weeks. Whether Unknown or other Asian countries step up in a big way (or not), March corn prices approaching 420 may dictate market direction in the near term.
WHEAT
Wheat is under modest pressure this morning as cold air moves out of the Plains, with significant warming expected over the next 2 weeks. In addition, wheat markets held up well late last week while many other commodities sold off sharply. Snow cover across the Black Sea region is expected to reduce winterkill risks.
CATTLE
Live cattle closed slightly weaker on Friday, but the late-day cash trade may be a friendly factor for this morning’s opening. The semiannual cattle inventory report showed total inventory at 99.6% of year-ago levels, compared to an estimate of 99.7%; beef cows were 99.0% versus the estimate of 100.4%; and the total calf crop was lower at 98.4% compared to 99.3% estimated. Overall, the report showed cattle inventory remains at a 75-year low.
HOGS
April closed near the lows of the week on Friday, following the gap lower last Wednesday, which remains a negative technical factor and may result in fund long liquidation. The latest CFTC data showed a significant 17% increase in the fund net long last week to just under 114,000.
MILK CLASS III
March Class III milk finished last week with a sizable gain after reaching a 3-month high on Monday.
ENERGIES
March Crude Oil was sharply lower early Monday, pressured by a selloff in the commodity sector but also by reduced geopolitical concerns and a recovery in US oil production after being interrupted by the extreme cold the early last week. President Trump said over the weekend that Iran was “seriously talking” with Washington, signaling a de-escalation in his threats to attack Iran. Reports that the naval forces of Iran’s Revolutionary Guards have no plans for live-fire exercises in the Strait of Hormuz were also greeted with relief. The dollar’s sharp bounce off last week’s four-year lows adds to the pressure. OPEC+ agreed to keep its oil output unchanged for March at their meeting on Sunday. US crude oil stocks are above year ago but below the five-year average.
March Natural Gas was sharply lower early Monday in a clear rejection of Friday’s move to a seven-month high. The extreme cold that lifted the market last week is on its way out. The 6-10 and 8-14-day forecasts have the area of below normal temperatures shrinking eastward, out of the Midwest and the western Great Lakes (as well as most of the southern US). Colder temps will remain in the east, but at less extreme levels. Above-normal temps are expected to continue in the west and will cover about three quarters of the lower 48.
DOLLAR INDEX
The USD index firmed to start the week as traders continue to digest the appointment of Kevin Warsh to head the Fed. Warsh has been critical of central bank policy in recent years and favors a lower neutral policy rate. Warsh also has experience serving as a Fed governor from 2006 to 2011. That experience is likely offering the dollar support, alleviating some nervousness in the markets that the Fed Chair pick would be a lot more dovish.
COCOA
March Cocoa was lower early Monday and was close to taking out Friday’s contract lows. The selloff in the precious metals has likely contributed to the negative sentiment in the softs markets in recent sessions, but cocoa was already under pressure from a buildup of unsold beans in Ivory Coast and Ghana. Higher official prices this year have encouraged farmers to harvest beans and bring them to market, but buyers have been reluctant to pay these prices.
COFFEE
March Coffee fell to its lowest level since fell below a five-month consolidation on Friday to trade to its lowest level since August 19, and it was hovering in the lower end of Friday’s range early Monday. Traders may be finally convinced that the upcoming Brazilian crop will be strong. Decent rains over the past couple of months, including some active rainfall in January, are setting the trees up for good cherry development. It is also the on-year for Brazil’s biennial cycle.
COTTON
March Cotton fell to new contract lows early Monday, with the pressure on commodities across the board adding insult to injury. Export sales have shown occasional bouts of strength recently, but they have not been consistent enough alter expectations that US supply/demand balance will be burdensome.
SUGAR
March Sugar was lower early Monday after breaking below a two-month consolidation pattern on Friday and fell to its lowest level since November 10. This puts the market in striking distance of the contract low at 14.04 from November 6, which was the lowest the nearby contract had been since October, 2020. The global sugar market is looking at surplus this year, thought recent forecasts have narrowed it somewhat. Reduced demand from the success of weight loss drugs is a recurring theme.
PRECIOUS METALS
Gold prices are little changed, recovering from overnight losses and stabilizing after Friday’s outsized moves in the precious metals space. The CME increased margin requirements for the metal, which did add to some selling pressure. Gold has lost about $900 since hitting an all-time high of $5,594.82 on January 29, erasing most of this year’s gains.
Silver futures are up 3% to $80.93 following Friday’s extreme selloff, which saw the metal fall 31% as profit-taking and a collapse of the FOMO rally created a frenzy.
Copper prices fell, pressured by a stronger dollar and profit-taking with prices hitting three-week lows as the recent surge in prices ran ahead of fundamentals. Weak demand, rising stockpiles, and the likelihood of higher supplies all suggested copper’s rally to record highs at $14,527.50 last Thursday was unsustainable.
EQUITIES
The indexes are lower, with the Nasdaq and S&P slipping, while the Dow traded flat, with all three indexes recovering from steeper, overnight losses. Focus in the equities is back on the tech front after Nvidia CEO Jensen Huang downplayed his company’s $100 billion investment into OpenAI after a report came that the deal may collapse. Quarter reports from Amazon, Alphabet, and AMD are on the docket this week after four of the Mag Seven reported last week, that saw moves in opposite directions.
INTEREST RATES
Yields are little changed across the curve as markets look to Friday’s jobs report. The Fed recently held rates steady at its latest meeting and signaled that the labor market has stabilized, leaving room to keep rates on hold for the coming months. Any confirmation of that view is likely to provide yields with underlying support and could push rate cut odds further back into the summer. Markets are currently priced for a July cut and show 51.5 bps of total easing by year end. Ahead of Friday’s report will bring JOLTS data for December on Tuesday.
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