Commodities Overview December 2024 Edition

MONTHLY FUTURES MARKET OVERVIEW

>>Read the full December 2024 Edition HERE

GRAINS

On the surface the December WASDE data was bullish for corn prices. Given the markets inability to see follow-through strength after report day suggests to me the market had discounted the tighter U.S. inventories in advance. The USDA slashed U.S. ending stocks 200 mil. bu. to 1.738 bil. 165 mil. below expectations. Exports were increased 150 mil. bu., while usage for ethanol production was up 50 mil. I had the lowest corn ending stocks forecast in the Reuters survey of guesses at 1.863 bil. bu., down 75 mil. from November 24, which proved too high. Global stocks fell nearly 8 mmt to 296.4 mmt, well below expectations, largely due to lower U.S. supplies.

March 25 soybean consolidated around the $10 level the first half of December before finally breaking into new lows, pressured by growing production prospects in South America. The USDA WASDE data was neutral for soybeans as U.S. stocks held steady at 470 mil. bu. There was an increase in bean oil yields as production was up 270 mil. lbs. to 28.605 bil. lbs. without an increase in crush. The USDA kicked the biofuel usage estimate for bean oil down the road a month keeping consumption at 14.0 bil. lbs. Global stocks were little changed at 131.9 mmt, slightly below expectations.

The December 2024 WASDE data was neutral to supportive for wheat prices. U.S. ending stocks were down 20 mil. to 795 mil. bu. slightly below expectations. Imports rose 5 mil., while exports were up 20 mil. bu. Global stocks were little changed at 257.9 mmt, in line with expectations. Russian and EU exports were lowered 1 mmt each. Ukraine exports rose .5 mmt. Increased production this year in Argentina and Australia nearly offset the lower production in Russia. As winter crops in Ukraine, Southern Russia and Kazakhstan reach dormancy, effects from this summer’s drought, continue to be felt.

COCOA

The cocoa market has seen almost two months of solid gains on concerns about the condition of the West African main crop, which runs from October through March. Heavy rains in late October raised the possibility of disease, and then emergence of dry weather in November and December got the trade wondering if the harvest will be strong enough to overcome three years of global supply deficits. This is the dry season for West Africa, but that has not calmed traders’ fears. The dry Harmattan wind typically sweeps down from the Sahara this time of year, which can dry soils and damage small cocoa pods that will be harvested in February or March.

COFFEE

NY (arabica) coffee traded to new all-time highs this month on anxiety over the upcoming Brazilian crop. Brazil suffered a severe drought in 2024 that stressed trees and at one point raised concerns that the 2025 crop would not experience a successful flowering. The arrival of rainfall in October ended that concern, as the crop saw an ample flowering period. However, the extended drought has left open the possibility that the trees will not have enough energy stored to produce a large crop. Anecdotal reports from growers have mentioned ample branch growth in the wake of the rain but a lack of cherry development.

SUGAR

The sugar market sold off sharply this month in the wake of a Brazilian production report from Unica for the second half of November that was surprisingly strong. The report showed center -south Brazil production for the first half of November at 1.084 million metric tons, down from 1.412 million from the same period last year but up from 901,000 from the first half of the month. Production typically peaks in July and falls off into February, so the fact that it increased sharply in late November caught the market by surprise. The collapse in the Brazilian currency, the real, encourages producers to actively sell their products on the global market. Cumulative production for Brazil’s 2024/25 marketing year, which began in April, has only recently fallen behind year ago levels.

CRUDE OIL

The crude oil market has been chopping back and forth in a roughly $20 range for two months, with supply concerns sparked by wars in the Middle East and Ukraine offset by low demand expectations, especially for China. To date, the wars have had little effect on supply, save for some occasional interruptions to shipping from Houthi attacks on vessels in the Red Sea and from the maneuvering by Russia to avoid western sanctions. OPEC+ has repeatedly postponed planned increases in production because of the low prices, most recently to the second quarter of 2025.

STOCK INDEX FUTURES

Earlier this month S&P 500, NASDAQ, and Dow Jones  futures advanced to record highs as traders assess the economic impact of President-elect Donald Trump’s transition to the White House. However, stock index futures declined sharply after the Federal Reserve at its December 18 policy meeting indicated it plans fewer interest rate reductions next year than previously anticipated.

US DOLLAR INDEX

The U.S. dollar index advanced to new highs for the move in light of the hawkish commentary from the December 18 Federal Open Market Committee statement. The greenback has now traded at its highest level since November 2022. This rally followed the Federal Reserve’s expected 25 basis point rate cut on December 18, although the central bank indicated fewer rate reductions in 2025 than initially anticipated. Additionally, the Fed updated its economic outlook for 2025, raising gross domestic product growth and inflation expectations, while lowering its unemployment rate forecast. As a result, markets now anticipate a 91% chance that the Fed will leave rates unchanged at its January 29 policy meeting.

EURO CURRENCY

The euro currency is approaching its lowest point since November 2022 as a result of the stronger U.S. dollar following the Federal Reserve’s hawkish outlook for 2025. While the Fed lowered the federal funds rate by 25 basis points as anticipated, it signaled only 50 basis points of rate cuts for 2025, which is half of what was forecasted in September.

GOLD

December gold futures have been under pressure due to the growing belief that the U.S. Federal Reserve will be slower to move to accommodation, which dampened the appeal of gold as a non-interest-bearing asset. February gold futures declined following the Federal Reserve’s hawkish stance with fewer interest rate cuts in 2025. The Fed’s dot plot projections indicated only two interest rate cuts, supported by strong gross domestic product growth and persistent inflation. There is a 91% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 9% chance of a 25 basis point reduction.

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