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., Core Inflation Rate MoM & YoY, Inflation Rate MoM & YoY, CPI and CPI s.a. at 7:30 A.M., EIA Energy Stocks at 9:30 A.M., 17-Week Bill Auction at 10:30 A.M., 10-Year Note Auction at 12:00 P.M., and Monthly Budget Statement at 1:00 P.M.

The National Federation of Independent Business’s monthly survey of small business owners showed a historic surge in small business owner’s optimism in November. The Small Business Optimism Index jumped 8 points from October, the largest 1-month increase since January 1980, the highest index value since 2021, and the 2^nd highest since October 2020. The index was above the long-term average for the first time in 34 months. The NFIB’s chief economist noted that, “the election results signal a major shift in economic policy, leading to a surge in optimism among small business owners.” The net percentage of owners expecting the economy to improve rose 41 points from October to a net 36%. The net percentage of owners who believe it is a good time to expand their business climbed 8 points to a net 14%, the highest since June 2021. 28% of owners plan capital outlays the next 6 months, up 6 points from October and the highest since January 2022. However, 20% of owners reported that inflation is still the single most important problem in operating their business.

Photo by Jesse Gardner on Unsplash

Ag Resources Analysis of USDA’s December WASDE

USDA’s December WASDE, unlike most years, included another consecutive meaningful decline in US corn stocks, while also featured a larger US wheat exports and unchanged US soybean balance sheet. USDA has been reluctant to trim Us soyben exports as it’s the pace of new sales shipments after winter that will determine final US soy exports/stocks. Additionally, adjustments to US and world grain balance sheets leaned supportive as favorable weather in South America is needed to build global corn stocks in calendar year 2025. However, the strategy remains to use nearby rallies – which will be a function of large US crop disappearance rates in Jan/Feb – to manage forward risks. Assuming rain returns to Argentina as forecast in the 10-15 day period, all of South America will be well watered in late December. Barring weather adversity, South American soybean exports will be up 415 Mil Bu year-over-year; corn exports will be up 350-375 Mil. The EU model’s 14-day precipitation is showing some rain showers in certain areas in major crop areas. Keep in mind year-over-year demand so far in 24/25 has been mostly a function of smaller Brazilian crops and corn/wheat yield loss in Europe & Black Sea in 2024. ARC’s mentality of selling rallies is based on the absence of a new global demand driver.

Analysis of USDA’s December WASDE

The US corn balance sheet continues to tighten has pulled global stocks down to 296 MMT’s, vs. a projected 304 MMT’s in Nov and 316 MMT’s a year ago. ARC notes global corn stocks in 24/25 will be the smallest since 2020/21. ARC has no major disagreement with USDA’s larger demand forecast, but also notes further hikes are unlikely until South American production details are known in spring. Key in the next 30 days will be final US yields, to be published in early January, and thereafter it’s important that weekly US corn export sales stay perched above %0 Mil Bu in Jan-Feb in the face of probable widespread US tariffs. Record US yields have been absorbed via enlarged demand, but assuming normal South American weather and modest expansion in US seedings, outright supply fears will be minimal. WASDE cut 24/25 Chinese corn imports yet another 2 MMT’s to 14 MMT’s, vs. 23.4 in crop year 23/24.

CBOT corn’s recent recovery makes economic sense . Ag Resources posted a graphic of US corn stocks/use against price on the day of WASDE’s release, showing March corn at $4.49 is aligned with USDA’s balance sheet, and while there may be 5-15 cents of upside risk, it’s the future rate of disappearance that offers risk – ARC’s strategy remains to leverage relative global marker tightness to add to 2024 and 2025 hedges. Record US corn demand in 24/25 is largely a function of a smaller Brazilian harvest last summer and of course crippling drought in eastern Europe, Ukraine, and southern Russia. If supply issues are not replicated in 2025 the US and world balance sheets will begin the process of loosening. Our primary concern is that US end stocks in 24/25 rise to 2.2-2.3 Bil Bu, at which point fair value is lowered at $3.70-$4.20. March and Dec CBOT above $4.50 provide opportunities to sell. Ethanol margins are no longer fancy , while South American cash premiums, on the margin have drifted lower.It’s also tough to identify a problem today in South America, and ARC reiterates Argentina’s surplus in 2025 will arrive earlier than normal amid avtive seeding there in Oct & Nov. Increasingly, the market burden will lie upon the demand bulls if South American weather stays favorable in January.

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