cmdty FMS Daily

Dec E-mini S&Ps this morning are up +0.08% ahead of a meeting today between President Trump and congressional leaders to negotiate on a long-term budget deal. The House is expected to vote on a two-week spending bill today to keep the government open through Dec 22, and the Senate is expected to vote on the measure Friday. European stocks are up +0.14% after Eurozone Q3 GDP was revised upward to show the fastest pace of growth in 6-1/2 years. Gains in European stocks were limited, and EUR/USD slipped to a 2-week low after German Oct industrial production unexpectedly declined by the most in 10-months. Asian stocks settled mixed: Japan +1.45%, Hong Kong +0.28%, China -0.67%, Taiwan -0.37%, Australia +0.54%, Singapore -0.27%, South Korea -0.29%, India +1.08%. China's Shanghai Composite closed lower, but remained above Wednesday's 3-1/2 month low, and Japan's Nikkei Stock Index moved higher due to strength in technology stocks and a weaker yen, which boosted Japanese exporters.

The dollar index is up +0.15% at a 2-week high. EUR/USD is down -0.08% at a 2-week low. USD/JPY is up +0.36%.

Mar 10-year T-note prices are down -3.5 ticks.

German Oct industrial production unexpectedly contracted for a second month as it fell -1.4% m/m, weaker than expectations of +0.9% m/m and the steepest decline in 10-months.

Eurozone Q3 GDP was revised upward to +2.6% y/y from +2.5% y/y, the strongest pace of expansion in 6-1/2 years.

Key news today includes: (1) Nov Challenger job cuts (Oct -3.0% y/y), (2) weekly initial unemployment claims (expected +2,000 to 240,000, previous -2,000 to 238,000) and continuing claims (expected -38,000 to 1.919 million, previous +42,000 to 1.957 million), (3) USDA weekly Export Sales, and (4) Oct consumer credit expected +$17.0 billion, Sep +$20.83 billion.

Dec S&P 500 E-mini stock futures this morning are up +2.00 points (+0.08%). Wednesday's closes: S&P 500 -0.01%, Dow Jones -0.16%, Nasdaq +0.45%. The S&P 500 on Wednesday closed little changed. Stocks were supported by the as-expected +190,000 increase in the U.S. Nov ADP employment change, right on expectations and a sign of strength in the U.S. labor market, and by a rebound in technology stocks after the Nasdaq Composite recovered from a 3-week low and moved higher. Stocks were undercut by weakness in energy stocks after crude oil fell -2.88% to a 2-week low and by concern about a partial government shutdown if Congress doesn't extend funding past Friday.

Grain prices this morning are mixed. Mar corn -0.50 (-0.14%), Jan soybeans -7.25 (-0.72%), Mar wheat +0.25 (+0.06%). Grains on Wednesday closed lower with Mar wheat at a 1-week low: Mar corn -1.00 (-0.28%), Jan soybeans -5.75 (-0.57%), Mar wheat -7.50 (-1.73%). Bearish factors included (1) the rally in the dollar index to a 2-week high, which is negative for U.S. grain export prospects, (2) signs of bigger global wheat supplies after Canada said its 2017 wheat crop will be 30 MMT, above estimates of 27.4 MMT, and (3) updated weather forecasts that forecast rains for Argentina next week. Soybeans had rallied to a 4-1/4 month high Tuesday as dryness concerns in Argentina fueled fund short-covering after MDA Weather Service predicted as much as two-thirds of Argentina's soybean crop will suffer from moisture stress due to lack of rain and increased temperatures. Increased wheat exports from Russia, the world's biggest wheat exporter, may further curb demand for U.S. wheat as Russia wheat exports from Jul 1-Nov 29 are up +28% y/y at 16.9 MMT. Strong Chinese soybean demand is also bullish for soybean prices as China Jan-Oct China soybean imports of U.S. soybeans are up +7.7% y/y to 22.004 MMT.

Livestock prices on Wednesday closed lower: Feb live cattle -1.250 (-1.04%), Feb lean hogs -1.550 (-2.30%). Feb cattle prices on Wednesday dropped to a 2-month low on cash market weakness after cash cattle prices fell to a 1-week low. Also, packer demand for cattle may wane after beef after packer profit margins contracted to a 6-3/4 month low on Monday. In addition, domestic beef demand may take a hit as December is a typically strong seasonal demand time of year for hams and turkeys at the expense of beef demand. Feb cattle on Nov 6 rose to a contract high on strong foreign demand for U.S. beef with U.S. Jan-Oct beef exports up +14.3% y/y to 2.34 bln lbs and the USDA projections for U.S. 2017/18 beef exports to climb +4.0% y/y to a record high of 2.970 bln lbs.

The Nov 17 USDA Cattle on Feed report was negative as it showed cattle on feed as of Nov 1 rose +6.3% y/y to 11.332 million head, above expectations of +5.6% y/y, and cattle placements in feedlots during Oct rose +10.2% y/y to 2.393 million head, higher than expectations of a +7.8% y/y. The Nov 22 USDA Cold Storage report was mixed as it showed beef in cold storage in Oct rose +2.2% m/m and fell -4.9% y/y to 506.931 mln lbs.

Feb lean hog prices on Wednesday closed lower on concern that increased hog weights may lead to bigger future pork supplies. USDA slaughter data shows hog carcass weights have trended higher over the past 2-months up to a 2-3/4 year high of 218.41 lbs last Friday. On the positive side, domestic pork demand has strengthened after wholesale pork prices rose to a 3-month high on Tuesday. In addition, foreign demand for U.S. pork is strong with U.S. Jan-Oct pork exports up +8.2% y/y at 4.582 bln lbs and the USDA projects that U.S. pork exports will climb +5.6% y/y to a record 5.9 billion lbs. The Nov 22 USDA Cold Storage report was supportive as well as it showed overall pork supplies in Oct fell -3.4% m/m and -0.3% y/y to 597.295 mln lbs.

The Sep 28 USDA Q3 Hogs & Pigs report was neutral to slightly supportive as it showed the U.S. pig herd as of Sep 1 rose +2.5% y/y to 73.549 mln, less than expectations for a +2.6% y/y increase, but still the highest Sep 1 inventory since the data began in 1964. Also, sows retained for breeding as of Sep 1 rose +1.2% y/y to 6.087 mln, right on expectations, and hogs marketed for slaughter rose +2.6 y/y to 67.462 million, less than expectations of +2.7% y/y, but still a record high for a Sep 1 (data from 1964). In addition, there was a record 10.65 piglets per litter in Q3.

Softs this morning are mixed with Mar sugar +0.09 (+0.62%), Mar coffee -0.50 (-0.40%), Mar cocoa +12 (+0.63%), and Mar cotton -0.02 (-0.03%). Softs on Wednesday settled mixed: Mar sugar -0.45 (-3.02%), Mar coffee -1.30 (-1.02%), Mar cocoa -26 (-1.35%), Mar cotton +0.29 (+0.40%). Mar sugar on Wednesday tumbled to a 4-week low as a slide in crude oil prices to a 2-week low spurred fund selling in sugar on concern weaker ethanol prices will prompt Brazil's sugar producers to divert less sugar toward ethanol production, thus increasing sugar supplies. Sugar supplies are already ample as Unica reported that sugar production in the crop year through mid-Nov in Brazil's Center-South region was up +2.4% y/y at 34.357 MMT. Mar sugar on Nov 24 rallied to a 6-1/2 month nearest-futures high on carry-over support from a rally in crude oil to a 2-1/3 year high, which benefits ethanol prices and may prompt Brazil's sugar mills to divert more sugar supplies toward ethanol production. ISO projects a global 2017/18 sugar surplus of +5.03 MMT following the global 2016/17 deficit of -6.465 MMT. India projects that its 2017/18 sugar crop will increase by +23% y/y to 25 MMT, the first gain in 3 years. The USDA's Foreign Agricultural Service (FAS) on Nov 17 raised its 2017/18 global sugar surplus estimate to 10.73 MMT from a May forecast of 8.07 MMT and raised its global 2017/18 sugar production estimate to 184.95 MMT from a May view of 179.64 MMT.

Mar coffee prices on Wednesday fell to a 2-week low and closed lower on abundant supplies after ICE-monitored coffee inventories on Tuesday rose to a 2-year high of 1.93 million bags. Mar coffee had posted a 1-1/2 month high last Thursday on Brazil crop concerns after Ecom Trading forecasted that Brazil's 2017/18 coffee crop will be between 52 mln and 53 mln bags, below government estimates of 55 mln bags, due to uneven rains in Brazil's coffee-growing regions. Mar coffee on Nov 20 tumbled to a 5-1/2 month nearest-futures low on robust global supplies. ICO data shows global arabica coffee exports in the year through Oct up by +5.4% y/y to 76.23 mln bags. Also, the ICO recently revised up its global 2016/17 coffee ending stocks estimate to a surplus of 2.38 mln bags, the first surplus in 3 years, as it raised its global 2016/17 coffee production estimate to a record 157.44 mln bags. The Green Coffee Association reported that U.S. Oct coffee inventories rose +13% y/y to 7.04 mln bags, modestly below the 23-1/3 year high of 7.413 mln bags from Jul. Brazil's 2016/17 coffee output according to Confab may fall as much as -15% to 43.7 mln bags from 51.4 mln bags in 2016 since crops are in their lower-yielding half of their 2-year cycle.

Mar cocoa prices on Wednesday slid to a 3-1/4 month low on robust supplies. Ivory Coast data showed farmers there delivered 504,000 MT of cocoa beans to Ivory Coast ports from Oct 1-Dec 3, up +3.5% y/y. Also, the ICCO last Thursday hiked its 2016/17 global cocoa production estimate to a record 4.73 MMT from a prior estimate of 4.70 MMT, which will result in a 6-year-high global 2016/17 surplus of +335,000 MT. Mar cocoa rallied to an 8-month high Nov 10 signs of stronger global chocolate demand after Barry Callebaut reported a +9.2% increase in volume in the three months through Aug. Current cocoa output appears robust after Ghana, the world's second-largest producer, said its 2016/17 cocoa production rose +25% y/y to 969,438 MT, a 6-year high. Cocoa demand is generally strong with Q3 Asia cocoa grindings up +13% y/y to 167,737 MT, European Q3 cocoa grindings up +3% y/y to 353,544 MT, and Q3 North American cocoa grindings up +0.7% y/y to 125,263 MT. The Ivory Coast, the world's biggest cocoa producer, reported cocoa purchases, a sign of production, rose to 2.015 MMT from Oct-Sep 24, up +29% y/y and a record high.

Mar cotton on Wednesday closed higher after Pakistan's Textile Mills Association said Pakistan may need to import 2.5 mln bales of cotton in 2018. Recent foods in Pakistan, the world's fourth-largest cotton producer, may reduce its cotton crop and prompt it to import as much as 1 mln bales this year, according to researcher Rose Commodity Group. Mar cotton last Wednesday posted a 2-1/2 month high as signs of strong foreign demand for U.S. cotton spurred fund buying. The USDA projects global 2017/18 cotton use will climb to 119.25 mln bales, the most since 2009. China's Oct cotton imports surged +88.9% y/y to 78 MMT and its Jan-Oct cotton imports are up +40.7% y/y to 982,400 MT. On the negative side, the USDA in the Nov 9 WASDE report unexpectedly raised its U.S. 2017/18 cotton production estimate to an 11-year high of 21.4 mln bales and raised its global 2017/18 cotton production estimate to a 5-year high of 12.46 MMT from an Oct estimate of 120.8 MMT. The USDA also unexpectedly raised its U.S. 2017/18 cotton ending stocks estimate to a 9-year high of 6.1 mln bales.

Jan crude oil this morning is up +26 cents (+0.46%) and Jan gasoline is +0.0153 (+0.92%). Wednesday's closes: Jan WTI crude -1.66 (-2.88%), Jan gasoline -0.0575 (-3.35%). Jan crude oil and gasoline on Wednesday closed lower with Jan crude at a 2-week low and Jan gasoline at a 1-month low. Crude oil prices were undercut by the rally in the dollar index to a 2-week high, the +0.3% increase in U.S. crude production in the week ended Dec 1 to a 46-year high of 9.707 million bpd, and the +6.78 million bbl surge in EIA gasoline inventories (vs expectations of +2.5 million bbl).

Metals prices this morning are mixed with Feb gold -8.3 (-0.66%) at a 4-1/2 month low, Mar silver -0.070 (-0.44%) at a 4-3/4 month low and Mar copper +0.016 (+0.52%). Wednesday's closes: Feb gold +1.2 (+0.09%), Mar silver -0.113 (-0.70%), Mar copper +0.0155 (+0.53%). Metals on Wednesday settled mixed with Mar silver at a 4-1/2 month low. Metals prices were undercut by strength in the dollar after the dollar index rose to a 2-week high and by fund selling of silver on concern that a slowdown in China, the biggest consumer of silver, will reduce its demand for the metal. Gold moved higher on increased safe-haven demand on concern Congress may fail to extend the debt limit pasty Friday, which would lead to a partial shutdown of the government.

Mar 10-year T-note prices this morning are down -3.5 ticks. Wednesday's closes: TYH8 +8.00, FVH8 +5.50. Mar 10-year T-notes on Wednesday closed higher on the downward revision in U.S. Q3 unit labor costs to -0.2%, weaker than expectations of +0.2% and a sign of slack wage pressures. T-notes were also supported by carry-over support from a rally in German 10-year bunds to a 5-1/4 month high.

The dollar index this morning is up +0.136 (+0.15%) at a new 2-week high. EUR/USD is down -0.0010 (-0.08%) at a fresh 2-week low and USD/JPY is up +0.40 (+0.36%). Wednesday's closes: Dollar Index +0.231 (+0.25%), EUR/USD -0.0030 (-0.254%), USD/JPY -0.31 (-0.28%). The dollar index on Wednesday moved up to a 2-week high and closed higher on signs of strength in the U.S. labor market that bolsters the case for additional Fed rate hikes after the Nov ADP employment change increased in line with estimates. In addition, EUR/USD fell to a 2-week low as the fall in the German 10-year bund yield to a 5-1/4 month low undercut the euro's interest rate differentials.

Global Calendar – Thursday 12/7/17

0730 ETNov Challenger job cuts, Oct -3.0% y/y.
0830 ETWeekly initial unemployment claims expected +2,000 to 240,000, previous -2,000 to 238,000. Weekly continuing claims expected -38,000 to 1.919 million, previous +42,000 to 1.957 million.
0830 ETUSDA weekly Export Sales.
1100 ETTreasury announces amount of 3-year T-notes (previous $24 billion), 10-year T-notes (previous $23 billion) and 30-year T-bonds (previous $15 billion) to be auctioned Dec 11-12.
1500 ETOct consumer credit expected +$17.0 billion, Sep +$20.83 billion.