Market Perspectives – February 1, 2024

Chicago Board of Trade Market News

Outlook

The advanced estimate for U.S. 4th quarter real GDP shows the U.S. economy growing at an annualized rate of 3.3%. This exceeded the average trade estimate of 2%. Nominal U.S. GDP was up 1.2% from the third quarter. At the same time, U.S. federal debt grew by 2.5% implying that U.S. GDP would have been negative were it not for government spending. The climbing U.S. debt will likely keep U.S. interest rates at elevated levels in the foreseeable future. U.S. equity markets had their biggest down day of the year on Wednesday, as the U.S. Federal Reserve indicated that the markets should not expect an interest rate cut in March. By Thursday, the equity markets had moved beyond that news and seem to be sure that a rate cut will happen at the May meeting of the Federal Reserve Board and recovered nearly all of Wednesday’s losses on Thursday.

The importance of February weather across Argentina is borne out in yield/weather correlation studies. Weather between now and early March is critical for the corn crop development there. It has been estimated that 4 to 5 inches of rainfall during February is needed to produce trendline corn yields in Argentina. Excessive heat could be more troublesome than a lack of February rains, but the combination of low rainfall and high temperatures would result in lowered crop estimates there. Argentine corn and soy yields should not be adjusted lower yet; however, rain is in immediate need with an absence of heat. Argentine weather will play a very significant role in daily corn/soy price discovery during the next 6 weeks.

U.S. corn export sales in the week ending Jan 25th were above expectations at 47 million bushels, however wheat and soybean exports were disappointing. The current pace of corn exports suggests that USDA’s forecast for marketing year exports is still on target. Final export numbers will be determined by the pace of new demand this summer which is a function of the South American crop size.

Corn futures tested near term lows near $4.37 per bushel several times this week and have bounced off those lows each time.  Large managed funds are holding record large short positions for late January/early February. In the past week, nearly every night new selling seems to come into the market but if the market does not press to new lows, then an intra-say short-covering rally seems to emerge by midday or near the close.

The soybean market is acting similar, except the soybean market made new lows for this move on Monday and closed back near those lows on Thursday. Harvest pressure from South America is weighing on the soybean complex despite nearly daily reports of poor yields and yields below expectations due to the very hot and dry weather since mid-December. There is little in the way of new news from USDA reports in the coming few weeks other than updates and adjustments to international production data in the monthly WASDE reports with the next one to be released on Thursday, Feb 8th.