The Ag Analyst’s Briefing: Week of February 6 Watchlist

Barron’s Magazine sums up my thinking going into February: “The Mood is Risk On, But the Risks Remain.” Here’s the take:

The year started with calls for a major global slowdown and a U.S., European and Chi-nese recession. The picture has changed, at least for the short term, as 4Q GDP growth (while a bit lower than 3Q) was still strong and the stock market has rallied in anticipa-tion of a soft landing. Perspective: the S&P 500 is up 7.7% YTD.

So why is the yield curve still inverted? The 3-Month Treasury Bill yields 4.53%, con-sistent with the newly revised Federal Funds Rate policy range of 4.50% to 4.75%. The problem is that the benchmark 10-Year Treasury Bond is yielding 3.52%, which suggest that an easing will occur in the future. 

We believe the soft landing thesis but not the “easing” call and worry about the “dis-connect.” And with last

week’s strong job’s report acting as an “all clear signal” for the Fed to remain hawkish, forget the “hard“ vs. “soft” landing debate, and think “long landing.”

Another worry is China. We got excited last week with the announcement of a meaningful amount of U.S. corn exports to that region; however, the Spy Balloon situation throws gasoline on the foreign policy fire.

Bottom line, global economies, capital markets and agriculture/energy commodities continue to look for normality in a sea of uncertainty and volatility.

ECONOMIC & OTHER NUMBERS OF INTEREST

25 bps -- The Fed slowed its tightening with a 25 bps increase in rates, Fed Funds rate is now 4.50% to 4.75%. Next FOMC meeting is March 2023.
3.4% -- Current U.S. unemployment rate fell to 3.4%, a 53-year low, following last Friday’s payroll report.
517,000 -- U.S. Jan nonfarm payrolls surged +517,000, well above expectations of +188,000, largest increase in 6 months.

AGRI-FOOD NUMBERS OF INTEREST
58% -- Percentage of Winter Wheat acres experiencing drought this week, down from 74% on November 1, 2022
$500 million -- J.P. Morgan Asset Management’s has acquired 250k acres in the Southern pine belt valued at $500+ million

The Watch List For The Week of Feb. 6

• Congress

  • President Biden deliver the State of the Union to Congress on February 6th.

• WASDE

  • February’s WASDE report out on February 8th

• Argentina & Brazil

  • Less than 50% of the nation’s soybean crop is rated “good” or “adequate” due to the effects of drought. Recent rains could be incrementally helpful but harvest estimates at risk. On the flipside, Brazil expected to produce record soybean crop of 155 MMT

• China

  • The Sky Balloons restoke the tension fires with China

• Diesel Volatility

  • European sanctions on Russian energy prices go into effect this week

• Winter Storm Impacts

  • Ice and freezing rain hit Texas, Oklahoma and Arkansas last week. Watch for impact on livestock feed (cows eat more when they are chilly, and hay is in short supplies due to drought)

• Consumer

  • University of Michigan’s (Go BLUE!) consumer sentiment report expected February 9th, watching for improvement given January’s stock market gains and recent favorable inflation readings.

January Cattle Inventory Report

• All Cattle and Calves inventory down 3% compared to January 2021
• Herd replacement will be a long-term recovery cycle considering:
  • Beef cow herd down 4% percent y/y –the lowest since 1962
  • Replacement heifers down 6% y/y
• Market cattle supplies tight in 2023
  • Cattle on Feed down 4% y/y
  • Feeder Cattle Outside Feedlots (i.e., steers 500 lbs.+, calves, other heifers ) lowest since 2015 –year of record cattle prices

(Thanks to Dave Judy of The Juday Group for the slide on protein)

Kenneth Scott Zuckerberg is Lead Industry Analyst, Grains, Farm Supply & Biofuels, CoBank.