Morning Comments December 1, 2021

Cornboard Field 042221

Yesterday was a rough day across the board as what started as concern over the Moderna CEO's comments regarding vaccine efficacy spilled over into comments from our Federal Reserve Chair regarding inflation, resulting in a strong desire from just about everyone to move to the sidelines.

As we talked about yesterday morning, markets were weaker to start the day as it appears Moderna's chief feels that current vaccines will not be effective against the Omicron variant. Moderna is not the only pharmaceutical group questioning their product's ability to handle the new variant, pushing some to wonder just how the global economy will recover if we are continuing to battle an ever-changing virus.

While it is easy to point to Omicron and say that's what is spooking the market, one could argue that comments from Fed Chair Jerome Powell had more of a negative influence than anything. 

Powell testified in front of a Senate committee yesterday regarding inflation and what the Fed is doing about the spike in consumer costs as a whole. Powell and members of the federal reserve have been adamant about using the word 'transitory' when discussing inflation over the last several months. 

During yesterday's testimony, Powell said it was time to retire the use of the word transitory as he believes it is causing confusion. To many, the word transitory means short lived, while to the Fed Powell says transitory means it will not have a lasting impact when it comes to higher prices long-term. In any event, Powell says the retirement of the word will allow the Fed to provide a clearer message to consumers about what they are doing to battle the inflationary pressures seen just about everywhere.

To many financial experts, yesterday's tone conveyed a clear message that the Fed will now turn its attention away from propping up the economy and towards fighting inflation. A battle against inflation, of course, would come from a quicker than anticipated move to end money flow from the Fed as well as a likely faster move towards raising interest rates. 

Currently the market is pricing in 2 rate hikes by September of next year, with another possible by December, while others feel that numerous hikes could take place next year if commodity prices and consumer costs don't start to cool.

We had seen a similar move by the Fed in 2018 that was stopped in its tracks when markets began to fall and investor sentiment crumbled. This fact of course is leaving some to wonder if the Fed will be able to be as aggressive as they would like to be when it comes to tapering and hikes, while others feel the political pressure from many Americans pinched by higher prices carries greater weight than investor sentiment, at least for now.

Looking ahead, we will get updated energy information later this morning. Traders of course will be looking to oil and gasoline stocks to give some insight into overall demand. Ethanol values were off hard yesterday in sympathy with lower energy prices across the board as well as some relief starting to show when it comes to the logistical snarls limiting ethanol flow to where it was needed. 

This morning's production numbers are expected to show continued strong corn demand for ethanol as prior to yesterday's drop margins were still around historically strong levels for this time of year. Stocks will be monitored closely as well to get a better feel for what is taking place from a logistical standpoint.

Chatter overnight indicates China was in buying some U.S. beans for Dec/Jan timeframe, though volumes were relatively light.

At the time of this writing, markets are stronger across the board from crude to corn to the Dow. We're going to see continued volatility throughout the week and for the next several weeks as traders work to figure out how to best position themselves as we head into year-end. 

It appears as though the government is now serious about doing what it takes to cool prices and fix supply chain issues, the question now, of course, will be how they do it and what kind of unintended consequences will result.

Corn up 5 to 6

Beans up 7-8