cmdty FMS Daily

Mar E-mini S&Ps this morning are up +0.40% ahead of this morning's U.S. economic data on Jan consumer prices and Jan retail sales. European stocks are up +0.68% on signs of economic strength in Europe after Eurozone Dec industrial production rose more than expected and Eurozone Q4 GDP came in right on expectations. On the negative side, energy stocks are under pressure with Mar WTI crude oil down -0.66% after API data late Tuesday showed U.S. crude inventories rose +3.95 million bbl last week. Asian stocks settled mixed: Japan -0.95%, Hong Kong +2.27%, China +0.45%, Taiwan closed for holiday, Australia -0.25%, Singapore -0.36%, South Korea +1.14%, India -0.42%. Chinese stocks settled higher ahead of the week-long Lunar New Year holiday that begins tomorrow while Japan's Nikkei Stock index dropped to a 4-month low on weaker-than-expected Japan Q4 GDP and as USD/JPY tumbled to a 1-1/4 year low, which reduces the earnings prospects for Japanese exporters.

The dollar index is up +0.04%. EUR/USD is down -0.10%. USD/JPY is down -0.41% at a 1-1/4 year low.

Mar 10-year T-note prices are little changed, up +0.5 of a tick.

Eurozone Dec industrial production rose +0.4% m/m and +5.2% y/y, stronger than expectations of +0.1% m/m and +4.2% y/y with the +5.2% y/y gain the largest year-on-year increase in 6-1/3 years.

Eurozone Q4 GDP was left unrevised at +0.6% q/q and +2.7% y/y.

Japan Q4 GDP rose +0.5% (q/q annualized), weaker than expectations of +1.0% (q/q annualized) and the slowest pace of growth in 2-years. The Q4 GDP deflator was unch y/y, right on expectations. Q4 private consumption rose +0.5% q/q, stronger than expectations of +0.4% q/q, and Q4 business spending rose +0.7% q/q, weaker than expectations of +1.1% q/q.



Key news today includes: (1) weekly MBA mortgage applications (previous +0.7% with purchase sub-index unch and refi sub-index +0.9%), (2) Jan CPI (expected +0.3% m/m and +1.9% y/y, Dec +0.1% m/m and +2.1% y/y) and Jan CPI ex food & energy (expected +0.2% m/m and +1.7% y/y, Dec +0.3% m/m and +1.8% y/y), (3) Jan retail sales (expected +0.2% and +0.5% ex autos, Dec +0.4% and +0.4% ex autos), (4) Dec business inventories (expected +0.3%, Nov +0.4%), (5) EIA weekly Petroleum Status Report.



Mar S&P 500 E-mini stock futures this morning are up +10.75 points (+0.40%). Tuesday's closes: S&P 500 +1.39%, Dow Jones +1.70%, Nasdaq +1.73%. The S&P 500 on Tuesday closed higher on upbeat comments from Cleveland Fed President Mester who said, "I expect the economy will work through this episode of market turbulence and in my view, the underlying fundamentals supporting the economy are very sound." Stocks were also supported by reduced interest rate concerns after the 10-year T-note yield declined. Stocks were undercut by heightened trade concerns after President Trump said tariffs are an option on foreign steel and aluminum producers.



Grain prices this morning are weaker with Mar corn -1,75 (-0.48%), Mar soybeans -3.00 (-0.30%), Mar wheat -4.25 (-0.92%). Grains on Tuesday settled mixed with Mar soybeans at a 2-month high: Mar corn -0.25 (-0.07%), Mar soybeans +10.00 (+1.00%), Mar wheat -3.25 (-0.70%). Bullish factors included (1) a weaker dollar, and (2) continued strength in soymeal prices which rose to a new 1-1/2 year high, which benefits soybean prices, on concern drought conditions will reduce soymeal production in Argentina, the world's biggest soymeal exporter. A negative for wheat is increased wheat exports from Russia, the world's biggest wheat exporter, which may further erode demand for U.S. wheat as Russia wheat exports from Jul 1-Feb 7 are up +37% y/y at 24.5 MMT. Losses in wheat were limited on drought concerns in the Great Plains that may curb U.S. winter wheat yields after data from the U.S. Drought Monitor showed 44.1% of the area was experiencing moderate drought as of Feb 6, up from 13.6% three months ago. A negative for soybeans was the action by researcher AgRural to raise their 2017/18 Brazil soybean crop estimate to a record 116.2 MMT from a Jan estimate of 114 MMT. Strong Chinese soybean demand for U.S soybeans has been a major bullish factor for soybean prices as China 2017 soybean imports rose +13.9% y/y to a record 95.54 MMT and the China National Grain and Oils Information Center estimates China 2018 soybean imports will rise +5% y/y to a record 100 MMT.



Livestock prices on Tuesday closed lower: Apr live cattle +1.375 (+1.11%), Apr lean hogs +1.675 (+2.43%). Apr cattle prices on Tuesday fell back from a 1-week high and closed lower on packer demand concerns. Apr cattle last Friday posted a 1-week low on concern packer demand for cattle may wane after beef packer profit margins tumbled to their most negative in 11-1/2 months. Apr cattle had risen to a 1-week high on strength in the cash market after cash cattle prices Monday rose to an 8-month high. The USDA projects U.S. 2018 beef exports to climb +5.7% y/y to a record 3.025 bln lbs and projects U.S. 2018 beef production will climb +5.9% y/y to a record 27.792 bln lbs. Apr cattle rose to a 2-month high last Monday on strength in the cash market after cash cattle prices jumped to a 7-1/2 month high. Foreign demand for U.S. beef is robust with U.S. 2017 beef exports up +12% y/y to 2.862 bln lbs.

The Jan 24 USDA Cold Storage report was mixed as it showed beef in cold storage in Dec rose +0.9% m/m and fell -13.8% y/y to 489.543 mln lbs. The Jan 26 USDA Cattle on Feed report was negative as it showed cattle on feed as of Jan 1 rose +8.3% y/y to 11.489 million head, above expectations of +7.7% y/y, and cattle placements in feedlots during Dec unexpectedly rose +0.8% y/y to 1.799 million head, higher than expectations of a -2.4% y/y decline.

Apr lean hog prices on Tuesday closed lower but remained above Monday's 4-month low. Bearish factors included (1) weakness in the cash market after cash hog prices dropped to a 5-week ow, and (2) concern packers will reduce their hog purchases after pork packer profit margins slumped to a new 2-1/2 year low. On the positive side, foreign demand for U.S. pork is strong with U.S. 2017 pork exports up +7.5% y/y at 5.632 bln lbs and the USDA projects that U.S. 2018 pork exports will climb +5.6% y/y to a record 5.9 billion lbs. The USDA also projects U.S. 2017/18 pork production to climb +5.1% y/y to a record 26.901 bln lbs. The Jan 24 USDA Cold Storage report was mixed as it showed overall pork supplies in Dec fell -2.3% m/m and rose +3.2% y/y to 490.782 mln lbs.

The Dec 22 USDA Q4 Hogs & Pigs report was bearish as it showed the U.S. pig herd as of Dec 1 rose +2.4% y/y to 73.23 mln, more than expectations for a +2.3% y/y increase. Also, sows retained for breeding as of Dec 1 rose +1.1% y/y to 6.179 mln, more than expectations for a +0.9% increase, and hogs marketed for slaughter rose +2.5 y/y to 67.051 million, more than expectations of +2.2% y/y and a record high for a Dec 1 (data from 1964). In addition, there was a record 10.74 piglets per litter in Q4.



Softs this morning are mixed with Mar sugar +0.05 (+0.37%), Mar coffee -0.25 (-0.20%), Mar cocoa +3 (+0.15%), Mar cotton -0.54 (-0.71%). Softs on Tuesday settled mixed: Mar sugar -0.25 (-1.82%), Mar coffee +1.35 (+1.11%), Mar cocoa +29 (+1.47%), Mar cotton -0.07 (-0.09%). Mar sugar on Tuesday fell to a 1-week low on weakness in crude prices, which is negative for ethanol prices and reduces incentive to Brazil's sugar producers to divert more sugar supplies toward ethanol production. Mar sugar posted a 3-week high last Tuesday after researcher Sucden forecast global 2018/19 sugar production may fall -3.3% to 141 MMT. Mar sugar posted a 4-1/2 month nearest-futures low Jan 19 on signs of robust global supplies. India raised its 2017/18 sugar production estimate to 36.1 MMT from 25.1 MMT and said it may export a much a 1 MMT of sugar to reduces surpluses, the first time it may export sugar in 2-years. Researcher Green Pool Commodity Specialists recently raised their 2017/18 global sugar surplus estimate to 10.4 MMT from an Oct estimate of 9.8 MMT. Data from Unica shows sugar production in the 2017/18 crop year through Jan in Brazil's Center-South region was up +1.63% y/y at 35.831 MMT, and that the percent of sugar use for ethanol production fell to 53.10% from 53.42% last year. ISO projects a global 2017/18 sugar surplus of +5.03 MMT following the global 2016/17 deficit of -6.465 MMT. 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 a record 184.95 MMT from a May view of 179.64 MMT.

Mar coffee prices on Tuesday closed higher on dollar weakness. Mar coffee rallied to a 1-week high last Thursday after Brazil reported its Jan coffee exports fell -4.9% y/y to 2.33 mln bags, the lowest level for a Jan in 5-years, and after Columbia, the world's second-biggest arabica bean producer, said its Jan coffee output fell -11% y/y to 1.13 mln bags. On the negative side, Vietnam said it expects its 2018 coffee exports to rise +9% y/y to 1.55 MMT. Supplies remain ample after the ICO on Feb 2 reported global Dec coffee exports rose +0.8% y/y to 10.62 mln bags. Also, ICE-monitored coffee inventories last month rose to a 2-1/4 year high of 2.017 mln bags. The ICO projects global 2017/18 coffee production will climb +0.8% y/y to a record 158.93 mln bags. Also, Conab, Brazil's forecasting agency, forecast Brazil 2018 coffee output may jump +30% to as much as 58.5 mln bags from 44.97 mln bags in 2017 on timely rains. Abundant global supplies had fueled fund selling and pushed Mar coffee prices down to a contract low on Dec 12. ICO data shows global 2016/17 arabica coffee exports rose by +5.4% y/y to 76.23 mln bags, although 2017/18 global coffee exports from Oct-Dec are at 28.36 mln bags, down -6.7% y/y. The ICO projects a global 2016/17 coffee ending stocks surplus of 2.38 mln bags, the first surplus in 3 years. The Green Coffee Association reported that U.S. Dec coffee inventories rose +6.0% y/y to 6.632 mln bags. The USDA on Dec 15 projected that global 2017/18 coffee ending stocks will fall -8.6% to a 5-year low of 29.3 mln bags.

Mar cocoa prices on Tuesday closed higher as a weak dollar spurred fund short covering. Mar cocoa on Monday fell to a 2-week low on signs of abundant supplies after data showed Ivory Coast farmers delivered 1.305 MMT of cocoa beans to Ivory Coast ports from Oct 1-Feb 11, up +1.9% y/y, and after ICE-Monitored cocoa inventories rose to a 3-1/2 month high of 4.198 mln bags. Cocoa prices had risen to a 2-1/2 month high last Monday on weather concerns in the Ivory Coast after Speedwell Weather reported that over the past month the Ivory Coast has received less than 75% of normal rainfall. Another supportive factor is signs of stronger global demand. Recent data from Barry Callebaut showed global chocolate sales rose +3.1% in the three months through Oct and the European Cocoa Association reported European Q4 cocoa processing rose +4.4% y/y to 353,286 MT, higher than expectations of +3.4% y/y and the most for a Q4 since the data began in 1999. However, Q4 Asia cocoa grindings rose +4.2% to 196,476 MT, below expectations of +8% y/y, and Q4 North American cocoa grindings unexpectedly fell -1.3% to 116,080 MT, weaker than expectations for a +2.5% increase. Mar cocoa on Dec 22 posted a contract low as signs of abundant supplies spurred fund selling of cocoa futures. The Ivory Coast on Dec 21 boosted its 2017/18 main cocoa crop forecast to 1.40 MMT to 1.45 MMT from a prior forecast of 1.35 MMT. Also, the ICCO recently 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. Ghana said its 2016/17 cocoa production rose +25% y/y to 969,438 MT, a 6-year high. 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 Tuesday tumbled to a 1-3/4 month low on signs of increased supplies. ICE-monitored cotton inventories rose to 7-month high of 85,121. Also, last Thursday's WASDE report showed the USDA unexpectedly raised its U.S. 2017/18 cotton ending stocks estimate to a 9-year high of 6.0 mln bales, more than expectations of a cut to 5.6 mln bales and raised its global 2017/18 cotton ending stocks estimate to 88.55 MMT, higher than expectations of a cut to 87.4 MMT. The USDA also raised its global 2017/18 cotton production estimate to a 5-year high of 121.37 MMT. Strength in foreign demand for U.S. cotton is a bullish factor after Thursday's weekly USDA export data showed that 520.9 running bales of upland cotton were sold the week of Feb 1, up +56% w/w. Cotton prices posted an 8-3/4 month nearest-futures high Jan 12 on expectations of increased foreign demand for U.S. cotton. Chinese cotton demand has been robust as China's 2017 cotton imports rose +28.9% y/y to 1.15 MMT. The Pakistan Textile Mills Association on Dec 6 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. The USDA projects global 2017/18 cotton use will climb to 120.5 mln bales, a 10-year high. The Cotton Advisory Board recently predicted 2017/18 cotton production in India, the world's biggest cotton producer, will climb +9.3% y/y to a 3-year high of 37.7 mln bales.



Mar crude oil this morning is down -39 cents (-0.66%) and Mar gasoline is -0.0153 (-0.91%). Tuesday's closes: Mar WTI crude -0.10 (-0.17%), Mar gasoline +0.0068 (+0.41%). Mar crude oil and gasoline on Tuesday settled mixed. Crude oil prices were undercut by the warning from the IEA that ramped up U.S. shale-oil production threatens to swamp global markets with crude supplies along with its prediction that the U.S. may unseat Russia later this year as the world's top crude producer. Crude oil prices were also undercut by expectations for Wednesday's EIA crude inventories to climb +3.0 million bbl. Crude oil prices found supoprt from the weaker dollar.



Metals prices this morning are mixed with Apr gold +2.2 (+0.17%) at a 1-week high, Mar silver +0.022 (+0.13%), and Mar copper id -0.005 (-0.16%). Tuesday's closes: Apr gold +4.0 (+0.30%), Mar silver -0.042 (-0.25%), Mar copper +0.0760 (+2.46%). Metals on Tuesday settled mixed. Metals prices were boosted by a weaker dollar and by short-covering ahead of U.S. inflation data Wednesday on Jan consumer prices. Metals prices were undercut by a hawkish comment from Cleveland Fed President Mester that further Fed rate hikes are needed this year and next.



Mar 10-year T-note prices this morning are up +0.5 of a tick. Tuesday's closes: TYH8 +3.50, FVH8 +0.75. Mar 10-year T-notes on Tuesday closed higher on carry-over support from a rally in German bunds to a 4-session high and on some short-covering ahead of Wednesday's U.S. inflation data on Jan consumer prices. T-note prices were undercut by hawkish comments from Cleveland Fed President Mester who said she sees U.S. tax cuts adding to growth and that further rate hikes are needed this year and next.



The dollar index this morning is up +0.035 (+0.04%). EUR/USD is down -0.0012 (-0.10%) and USD/JPY is down -0.44 (-0.41%) at a 1-1/4 year low. Tuesday's closes: Dollar Index -0.505 (-0.56%), EUR/USD +0.0060 (+0.49%), USD/JPY -0.84 (-0.77%). The dollar index on Tuesday closed lower on concern the Trump administration's budget plans will expand the U.S. budget and current account deficits. The dollar was also undercut by the decline in T-note yields, which undercut the dollar's interest rate differentials.