Perspective: Morning Commentary for January 17

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

January 17 – Stock have an upbeat tone ahead of the three-day holiday weekend. The optimism of a pro-business administration taking office on Monday, combined with positive bank earnings reports this week, overshadowed the uncertainties of what executive orders might be signed on Monday. The markets will be closed on Monday in celebration of the Martin Luther King, Jr. holiday. However, most traders will be closely following the headlines regarding the content of those executive orders, with a focus on how the markets might respond when they reopen on Monday evening. Yet, the VIX is trading below 16 this morning, reflecting the relative calm on Wall Street, as the dollar index trades near 109.4. Yields on 10-year Treasuries are trading near 4.60% this morning, after hitting fresh two-week lows, while yields on 2-year Treasuries are trading near 4.26%. Crude oil prices are modestly lower in early trade, while the grain and oilseed markets are mixed to firmer.

Housing starts rose to an annualized rate of 1.499 units in December, up from an upwardly revised 1.294 million in November, above the average analyst estimate of 1.320 million, and well above even the highest analyst estimate of 1.345 million. This is good news for the economy – to see a jumpstart for the housing industry. New permits to start building housing came in at an annualized rate of 1.483 million, down a bit from a downwardly revised 1.493 million the previous month, but modestly above the average analyst estimate of 1.458 million. Nonetheless, the housing sector has a lot of healing to do. Today’s start number for private housing starts was up 15.8% from the previous month, but it was still down 4.4% from the same month the previous year. Privately owned housing completions in December came in at an annualized rate of 1.544 million, which is down 4.8% from the previous month, and down 0.8% from the same month last year.

It’s a different story in China. It did see home prices rise in 23 out of out of the 70 surveyed cities in December, reflecting a positive response from China’s stimulus programs. That follows increases in 17 of the 70 cities in November. Yet, overall home prices still fell 5.7% year-on-year in December, following a 6.1% decline in November. Even so, the inventory of unsold houses across China continued to grow to 753 million square meters, which is the second highest on record behind the 760 square meters registered early last year. Market analysts expect property sales in China to continue to drop by another 10 – 15% in 2025. Properties make up more than half of the average citizen’s assets, so the health of the property sector directly translates into consumer sentiment, just as the health of the stock market tends to influence consumer sentiment here in the States, and therefore impact consumer spending. Consumer sentiment remains near record lows in China, largely due to the ongoing problems in the property sector.

Yet, the government claims that China’s gross domestic product rose by 5% in 2024, matching its target for the year. I’m not sure that even President Xi Jinping believes that number, but it is the official number, nonetheless. China claims that it’s economy grew at a 5.4% annualized pace in the fourth quarter to lift the overall annual number to that 5% target, which is questionable when you look at what’s happening on the ground. It’s stimulus programs are helping, but they’re still not seeing the type of momentum needed yet to turn China’s economy around. Furthermore, its population lost another 1.39 million to 1.408 billion people in 2024. That means that China’s population decline totaled roughly 3.5 million people over the past two years. It did see a bump in births in the “Year of the Dragon.” Chinese culture believes that a child born in the Year of the Dragon will experience good fortune and high status, which was expected to boost the birth rate over the past year. Yet, it wasn’t enough of a bump to offset deaths in China’s aging population, which continues to present challenges for its economy.

Soybeans imported into China’s northern ports from the U.S. Gulf in February would cost an estimated $12.34 per bushel at today’s prices, freight and currency conversion rates, while costing $11.97 per bushel if they originate from the U.S. Pacific Northwest. However, the cost of soybeans originating in Brazil would only cost $11.14 per bushel. March shipment soybeans shipped into Chinese ports would be $12.34 from the U.S. Gulf, $11.99 from the U.S. Pacific Northwest, and $10.99 from Brazil. As such, the only incentive that China has to buy U.S. soybeans in the months ahead is for its reserves, since it won’t put Brazilian soybeans into its reserves. The other possible reason would be in a potential trade deal in exchange for lower tariffs on consumer goods coming to the United States. We can talk all we want about the risk of tariffs on Chinese buyer of U.S. soybeans, but the bottom line is that the strong dollar simply makes our soybeans too expensive, except for those times when alternative supplies simply are not available. And the rapid expansion of soybean planting in Brazil means that it has those alternative supplies at an increasing rate, resulting in lower demand from China for U.S. soybeans.

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Perspective: Morning Commentary for January 17

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