Commodities Overview Dec 2023 Edition

MONTHLY FUTURES MARKET OVERVIEW

Read the full December 2023 Edition HERE

Grains

In December the USDA cut corn stocks 25 mil. as a result of higher exports. Ending stocks at 2.131 bil. bu. were slightly below expectations. Global stocks were basically unchanged at 315.2 mmt, which is roughly 2 mmt above expectations. The USDA left both Brazil and Argentine production unchanged at 129 and 55 mmt respectively. They increased production in Ukraine and Russia by 1 mmt each, while lowering production in Mexico by 1 mmt. Ukrainian exports rose 1 mmt to 21 mmt. No changes to China’s import forecast at 277 mmt. Although I was expecting stocks to remain unchanged I’m not shocked to see the modest 25 mil. bu. cut given the current pace to exports and the fact U.S. corn is priced below SA thru Feb-24.

Live Cattle

Live cattle futures topped at historic contract highs on September 19, 2023 and then went into a steep decline. The contract high for December 2023 live cattle was $192.05. By October 31 prices dropped to $182.30 and continued to collapse throughout November to $169.10 by month-end. The drop in cattle prices was caused by several reasons, including slowing beef demand because of high retail beef prices for consumers in the U.S. and the slowing of beef exports with higher beef prices in the U.S. compared to prices and more available beef supplies in Brazil and Australia.

Lean Hogs

An increase in U.S. hog slaughter continued to pressured prices in November. U.S. federal hog slaughter has increased throughout 2023, and as of the beginning of November 2023 year-to-date slaughter was 1.5% more than the same period in 2022. During November 2023 slaughter increased to be 1.6% higher with 1,801,000 more hogs year-to-date. The CME lean hog index began November at $76.84 and by month-end the lean hog index was $71.35. Hog prices were also affected by a downturn in international prices and supplies. There was news from China on November 27 that Chinese hog futures posted record low prices, and the USDA reported hog production in Brazil was up 3.12% in 2023 to record high production.

Stock Index Futures

Stock index futures advanced, including a new record high for Dow Jones stock index futures, due to the Federal Open Market Committee’s dovish policy statement and Federal Reserve Chair Powell’s press conference. The Federal Reserve held interest rates steady and signaled inflation had improved more rapidly than anticipated, which opened the door to interest rate cuts next year.  Most officials penciled in three interest rate reductions in 2024 in economic projections released after the Fed’s policy meeting on December 13.

US Dollar Index

The U.S. dollar index quickly dropped to a four-month low due to the FOMC statement and Federal Reserve Chair Powell’s press conference. Severe technical damage was done to the greenback in November when major trendlines were penetrated on the downside as economic reports reinforced beliefs that the Federal Reserve has reached the end of its tightening cycle.

Euro Currency

The euro currency trended higher since early October and into December. There has been some profit taking in early December. However, the uptrend for the euro resumed in light of changing interest rate differential expectations.

Crude Oil

Crude oil futures increased to near the $73 per barrel level and were on track for the first weekly gain in two months. Much of this was due to dovish signals from the U.S. Federal Reserve, a weaker U.S. dollar and an improving forecast for global oil demand in 2024. Earlier this week, the U.S. central bank strongly hinted at possible interest rate reductions in 2024, pressuring the greenback, while boosting risk assets.

Gold

Gold advanced to a record high on December 4 in a spike to the upside move. Much of the gains were given back since then, although there was renewed buying in light of the Fed’s tilt to the dovish side. The yellow metal was underpinned by a weakening U.S. dollar and declining Treasury yields after the Federal Reserve signaled three rate reductions in 2024 amid a faster-than-anticipated decline in inflation. Fed Chair Jerome Powell said that a discussion of a reduction in borrowing costs is coming “into view.” Stronger than expected U.S. retail sales and a decline in weekly jobless claims did little to change rate cut expectations.  

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