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We kickoff the day with Dallas Fed Manufacturing Index at 9:30 A.M., Export Inspections at 10:00 A.M., and  3-Month & 6-Month Bill Auction at 10:30 A.M.

The Fed’s preferred inflation indicator, the Personal Consumption Expenditure Price Index ticked slightly higher in December, but compared to a year ago, the inflation rate eased for the 3^rd consecutive month to 2.6%. This marked the 3^rd consecutive month that PCE inflation was below the long-term average. But while the rate of increase has slowed over the last 18 months, prices have yet to decline. The PCE Index was at a new record high in December and set a new record high in 40 of the last 41 months. While personal consumption continues to climb, the US savings remains historically low. The December savings rate set a new low for the year at 3.7% (of disposable income), marking the 28^th consecutive month that savings were below the long-term average of 8.5% price inflation has been fueled by savings and debt.

The South American weather forecast is consistent into Feb 5, with heavy rainfall confined to north/northeastern Brazil and a pattern of rapid soil moisture loss offered to South Brazil and Argentina. Argentine temps next week reach into the mid/upper 90’s, so the need for heavy rainfall mid-Feb onward remains in place. The GFS operational hints at the return of normal shower activity and moderation in temps in the 11-15 day period, but so far no other model followed. Close attention will be paid to Feb 5-10 Argentine forecast over the weekend. The GFS Ensemble model’s-the best performer—1-10 and 11-15 precipitation forecasts, a pattern of completed dryness in Argentina ends, but soaking rain is not yet indicated. Argentine weather in the second half of February is a big deal for yield determination. Rain will be in immediate need to preserve trendline yields.

Friday’s CBOT open interest continued to expand with Chicago wheat up +4,548 contracts, corn +4,548 contracts, soybeans +8,901 contracts, soybean meal +3,172 contracts, and soybean oil +3,041 contracts.

Many more cargo ships are avoiding transiting through the Red Sea following a weekend attack on an energy cargo, with the US expected to retaliate for Iran’s drone attack on Jordan that killed 3 American Servicemen. The Biden administration will try to respond to the weekend events without getting drawn deeper into the conflict and further raising world energy prices ahead of the U.S. November election. OPEC+ is unlikely to decide on their April forward crude oil supply policy and wait several more weeks. Festering Mideast tensions is likely to underpin energy market price breaks.

Biofuel markets pressured by margin erosion, recoveries in CBOT corn and soybean oil markets this this week have been capped as certain model forecast allow rain to return to Central Argentina by mid-February and as biofuel production margins continue to falter. Crude has added geopolitical risk premium as  Red Sea logistics worsen, not improve, but declining renewable diesel prices along with weakening RIN values/carbon credits have on the margin pressured biofuel output profitability. Animal fats/cooking oil continues to provide competition. Both ethanol and biodiesel RINS have fallen to 3.5-Year lows this week and sit 65% below last year in late January. This is a signal that production levels are lofty, but also stock are comfortable. California’s low carbon fuel credit price this week is quoted at $58/ton, vs. $68 in early January and vs. may 2023’s recent peak of $85. South American weather matters most, but US markets are in need of a demand driver.

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