We kicked off the day with MBA 30-Year Mortgage Rate, MBA Mortgage Applications, MBA Mortgage Market Index, MBA Mortgage Refinance Index, and MBA Purchase Index at 6:00 A.M., Retail Sales MoM & YoY, Export Prices MoM & YoY, Import Prices MoM & YoY, Retail Sales Ex Autos MoM, and Retail Sales Ex Gas/Autos MoM at 7:30 A.M., Redbook YoY at 7:55 A.M., Fed Woods Speech, Industrial Production MoM & YoY, Capacity Utilization, Manufacturing Production MoM & YoY at 8:15 A.M., Business Inventories MoM, NAHB Housing Market Index, and Retail Inventories Ex Autos MoM at 9:00 A.M., 17-Week Bill Auction at 10:30 A.M., 20-Year Bond Auction at 12:00 P.M., Fed Beige Book at 1:00 P.M., Fed Williams Speech at 2:00 P.M., and API Energy Stocks at 3:30 P.M.

Photo by Waldemar on Unsplash

The New York Fed’s monthly Manufacturing Index reflected a sharp decline in manufacturing business activity in December. The index fell 29 points from December to -44. This was the biggest decline since May 2020, when the economy was shutting down due to the pandemic, and it was the largest decline on record excluding the pandemic months. The new orders index fell 38 points to -49.4, and shipments index fell 25 points to -31.3. The unfilled orders index was unchanged but still -24.2 and inventories index was -7.4. The prices paid index rose 6.5 points to 23.2, while the prices received index fell 2 points to 9.5. Finally, the index for general business rose 6.7 points but remained historically low at 18.8.

Argentina weather trends drier with rain returning to Brazil beyond Jan 23. The south American weather is viewed as broadly nonthreatening assuming widespread regular rain returns to N Brazil in 8-15 day and assuming regular rains return to  Argentina by late month. Major subsoil moisture issues today exist in Mato Grosso do Sul, Parana, and Sao Paulo in central Brazil. It is critical that rain falls there no later than next Thurs-Fri. Otherwise, recent Argentine rain limits near-term crop threats. The EU 1-5 day and 6-day model precipitation forecasts a major shift lies ahead in Brazil as the Madden Julian oscillation expands eastward Jan22 onward. There is little to no rain advertised in Argentina into Jan 25. 11-15 day guidance is similarly dry. This is not an issue today , but Ag Resources (ARC) does note that late Jan through early March is critical to Argentina corn and soybean yield performance. Argentina’s pattern needs watching.

Corn sags on a drop in Brazilian price and remains deeply oversold. March corn ended slightly weaker as spot corn in Paris fell to newer lows at $5.16/Bu and March corn in Brazil has fallen to $5.80. The Brazil spot cash corn price index is in the front row, as bearish trend is not anticipated prior to knowing safrinha yields (2^nd crop), the Brazilian market has corrected in the last week. Otherwise breaking news is absent. Global markets have digested USDA’s 108 Mil Bu to US exporter production. South American production estimates remain incredibly wide ranging with talk of Argentine crop in excess of 60 MMT’s, vs. 35 in 2023, while Brazilian estimates drop to 115-117, vs. 137 a year ago. Mother Nature determines final South American output. A majority corn in Argentina pollinates in February. Safrinha corn in Brazil pollinates in Mar/Apr with uncertainty abound. Importantly, US ethanol margins have improved following the break in corn. A base will be established at $4.30-4.45. Short term upside becomes sizable if South American weather threats emerge as funds’ on Tuesday held the largest net short position since June 2020. Ag Resources (ARC) estimates funds’ short currently at 252,000 contracts. This has only been in exceed 13 weeks previously. The world must wait on Feb-Apr South American weather. Momentum in corn and soybean market remains negative. Pushback against fund selling remains absent.

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