Commodities Overview January 2025 Edition

MONTHLY FUTURES MARKET OVERVIEW

>>Read the complete January 2025 Edition HERE

GRAINS

The USDA January production, WASDE and stocks data was bullish for corn and in my opinion shifted the fundamental value range higher. The old resistance for spot futures at $4.60 is now support with the top side of value likely in the $5.00-$5.10 range. The USDA slashed 2024 production 276 mil. bu. to 14.867 bil., roughly 140 mil. below expectations. The average yield was down nearly 4 bpa to 179.3 bpa. Yields were cut across several key states with Indiana down 11 bpa, down 9 in Kansas and Minnesota, 8 lower in Ohio, 7 in Wisconsin, 6 in Nebraska, 2 in Iowa and South Dakota. Harvested acres were up 186k from the November 2024 forecast. December 1 stocks at 12.074 bil. was 75 mil. below expectations. Ending stocks for the 2024/25 MY slipped to 1.540 bil., 135 mil. below expectations despite lower usage.

The January USDA data was also supportive for the soybean complex as well. The USDA cut 2024 soybean production another 95 mil. bu. to 4.366 bil., 85 mil. below expectations. The average U.S. yield was cut 1 bpa to 50.7 bpa. Yields were cut across several key states with Indiana, Kansas and Tennessee all down 3 bpa. Yields in Michigan, South Dakota, Nebraska and Ohio were all down 2 bpa. Harvested acres were down 221k from November. December 1 stocks were at 3.10 bil. bu., while up 100 mil. from a year ago, were down 130 from expectations.

The January USDA data was neutral to bearish for wheat prices. U.S. ending stocks were little changed at 798 mil. bu., however in line with expectations. December 1 stocks at 1.570 bil. were up 150 from a year ago. However, also in line with expectations. The acreage data tilted bearish as the USDA projected 2025 winter wheat acres at 34.1 mil., which is up 725,000 from a year ago vs. expectations of unchanged. The by class breakdown show HRW acres up 213k to 24 mil., SRW up 378k to 6.44 mil., white up 100k to 3.64 mil. Global stocks were slightly higher at 259 mmt at the high end of expectations. Russian exports were cut 1 mmt to 46 mmt while Ukraine exports were down .50 mmt to 16 mmt. The USDA made no changes to major producers in the Southern Hemisphere. Cool dry conditions appear likely for the Southern U.S. plains in the second half of January.

COCOA

The cocoa market has spent the past month consolidating after trading to a record high on December 18. The West African main crop got off to a strong start, but the emergence of drier than normal conditions (albeit during the traditional dry season) has lowered expectations. As of January 10, Ivory Coast port arrivals for the 2024/25 season were running 27% ahead of last year but 21% behind two years ago. This suggests that global production will have a difficult time making up for three straight years of deficits. Swiss chocolate maker Lindt & Spruengli recently raised its 2024 margin estimate, and it forecast further sales growth in 2025 after reporting 7.8% organic growth for last year.

COFFEE

NY (arabica) coffee spent the past month consolidating its latest move to all-time highs. The trade is still concerned that last year’s drought in Brazil will have a negative effect on the 2025 crop, but a pattern of decent rainfall over the past two months has mitigated some of those concerns. The question remains whether the trees will have enough energy reserves to produce a strong crop. Anecdotal reports earlier this season pointed to strong branch growth but a lack of cherry development. In late November/early December, several analysts lowered their forecasts for 2025 production.

SUGAR

The downtrend in the sugar market continues with a recent move in March sugar to its lowest level since late August. The market fell under pressure this week on reports that that India may lift its restrictions on sugar exports. The Indian government has banned mills from exporting sugar since October 2023 as it attempted to keep domestic prices down after a drought had reduced output. The government has been slow to lift the ban, as it is also interested in boosting ethanol production. Last month some private firms lowered their forecasts for 2024/25 production, so the talk that the government may allow exports apparently caught the market by surprise. Shares of Indian sugar companies jumped 3% to 7% on the news.

CRUDE OIL

Crude oil has advanced to its highest level in six months, as increased hostilities in the Middle East, a patient OPEC, a more aggressive stance on the part of the U.S. against Russian oil exports have lent support. OPEC+ was due to start lifting some of its production quotas in October, but they have postponed them several times due to low prices. The collapse of the Syrian regime, Israel’s stalwart moves against Hamas, Hezbollah and the Houthis have raised tensions in the Middle East, but they have also put Iran back on it heels. News of a cease-fire/hostage exchange agreement between Israel and Hamas may lower some of those tensions. The U.S. Treasury recently announced new sanctions against Russian oil producers and exports, particularly aimed at the “shadow fleet” of tankers that have been bringing Russian oil to China and other Asian nations. The move by the Treasury has reportedly sent Asian buyers scrambling to secure Mideast oil.

NATURAL GAS

The EIA’s “Short Term Energy Outlook” was supportive to natural gas, as it called for U.S. demand to generally grow faster than supply in 2025. The EIA is looking for 2025 supply to increase by 1.4 billion cubic feet per day (Bcfd) and demand (including exports) to increase by 3.2 Bcfd. Exports are expected to increase by 2.9 Bcfd, mostly in the form of liquified natural gas. 2025 began with U.S. storage 6% above the five-year average, and the EIA expects it to be 4% below the average by the end of the year. Despite the recent cold trend in the U.S., the EIA forecast U.S. gas consumption this January to reach 119 Bcfd, similar to 2024 levels.

LIVE CATTLE

From the 2021 COVID pandemic through 2024, the holidays in December have been good for cattle prices and beef prices. From office parties to home get-togethers, beef demand has grown in December. With federal cattle slaughter down over 1 million head by November 2024 following 2023 when slaughter was down over a million head, and when economists would use the high prices for beef as a factor for inflation, consumers want beef for the holidays. Even as beef prices increased in 2024, current estimates are reported U.S. consumption per capita is steady with 2023 when consumption dropped by less than one pound.

LEAN HOGS

The estimated hog slaughter for 2024 is estimated to be up 1.7% compared to 2023. With increasing demand for pork particularly from exports, close to 5% higher for the year, plus the high prices for beef, pork prices in December 2024 were higher than 2023.

STOCK INDEX FUTURES

Stock index futures have come under selling pressure on the belief that the Federal Open Market Committee will be slow to move to accommodation in 2025. In fact, it now appears that there may be only one 25 basis point fed funds rate cuts this year when last December the feeling was that there could be a total of four 25 basis point cuts this year. Financial futures markets are predicting the FOMC will remain on hold at its January, March and May policy meetings. However, an interest rate cut now appears likely at the June meeting.

US DOLLAR INDEX

The U.S. dollar index advanced to its highest level since November 2022 as interest rate differentials continue to support the greenback. While the Federal Reserve is likely to be slow to add accommodation this year, other central banks such as the European Central Bank and the Bank of England may more aggressively be cutting their key interest rates, which is a recipe for Long term U.S. dollar strength.

EURO CURRENCY

The euro currency declined to its lowest level since November of 2022 as interest rate differentials continue to undermine the euro currency. In addition, economic data has come in on the weak side. For example, Germany’s gross domestic product fell by 0.2% in 2024, following a 0.3% contraction in 2023, which was in line with market expectations.

GOLD

February gold futures put in a strong performance so far this year, despite the belief that the Federal Open Market Committee will be slow to add to accommodation, especially compared to the predictions last December that the Fed could aggressively cut its key interest rate. Any time a market can advance on bearish news it must be viewed as a sign of strength.

 

 

 

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