BQC Morning Comments Dec 20.24

MORNING COMMENTS

Geopolitics:

Last night the US House of representatives failed to vote on the new spending bill and are expected to vote today on a slight revised version. If they do not come to an agreement by midnight tonight, federal funding expires and the government will shut down. If it does shut down, it will likely remain down until after Christmas. during the 2013 government shutdown, 850K workers stopped going to work, and based on the last several jobs reports we have a lot more government workers on the payroll at risk. Federal workers will receive retroactive pay when the government reopens which was a change made in 2019. These shutdown threats typically spook the markets and they recover following an agreement. Speculators do not like uncertainty, so the froth has been sent back to sidelines. This quote comes to mind in times like this.. “When there is blood in the streets, buy”.   

Macroeconomics:

I think there is opportunity for the US dollar to pull back closer to 101.0 on the Dollar index and possibly retest 100.0. The dollar has been bouncing between 100-108 since July of 2023. The most recent rally higher started following the -50 basis point federal interest rate cut in September and continued in November following Trump’s victory and his threats of new trade policies. Following tariff tweets, both Mexico and Canada stepped up their boarder security. So if it seems that the threats are enough for a reasonable agreement or a continuation of status quo with better treatment of the US at both the southern and northern boarders, it’s possible some of these tariffs never increase. If the tariffs are put in place and the dollar continues higher, the US consumer won’t feel the pain of hiking tariffs as much. On the other hand, if tariffs increase and the dollar decreases in value, the consumer will feel the brunt of the price increase.          

Ag Fundamentals:

Soybeans are attempting to gain back their steam lost earlier this week. 990’0-1000’0 has become the new line of resistance for March beans. If the dollar continues to hold strength, some are looking at the possibility of $8.90 beans sometime in early 2025. Most likely when Brazil is absolutely confident they will produce more than 170 million MT of soybeans this coming Feb/March. Currently support for March beans is in that 9.35 area. A larger than expected Brazilian crop and disappointing Chinese demand has allowed for a two dollar drop in soybean prices over the last 6 months. Ethanol production is as strong as it’s ever been and corn exports are higher than every year excluding 2021. The E-15 year-round policy is in the balance, and corn acres are expected to increase in the US next year. Wheat has felt the US dollar bully the US out of the global market.