Highlights
All the crude oil traders saw or heard yesterday was more cases of covid infection in China than any time since the dark days of the pandemic. World-wide, every newspaper and website carried the headline about surging covid cases in China. What the news stories did not carry were the countermeasures China has done and is planning to do to stimulate the economy (keep it going) despite covid problems increasing.
China’s banks have already been informed the required reserve ratios (RRR) have been lowered. RRR is the percentage of money on deposit that a bank cannot lend (there is a regulated reserve for all banks); it is the amount that must be held in the bank for reserve. The lower the RRR, the more bank deposit money that can be loaned, which stimulates the economy. China is preparing a financial stimulus program for December to counter the economic impact of coronavirus restrictions and planning another stimulus package for the winter. China also said the Zero-Covid policy in the industrial regions (where the crude oil is used) will be rescinded in December. When in December, we do not know.
China will free up US$70 billion by reducing the RRR rates (required reserve ratio) a quarter percent on December 5th to:
Agricultural banks - 4.5%
Small banks - 9%
Large banks - 10%
A stronger Chinese economy means they will eat more pork, need more soybeans, corn, crude oil, coal and everything else.
The Federal Reserve made the US bank reserve ratio zero percent in March 2020 (inflationary as all get out). In 1980, not only did the Federal Reserve raise the prime interest rate to 21½%, it required a bank reserve of 28%.
The minutes from the November Federal Reserve FOMC meeting concluded it would soon be appropriate for the Fed to slow the pace of rate increases. The market thinks this is a clear signal the Fed will go with a 50 basis point raise (½%) on December 14th.
Two weeks before the EU’s December 5th ban on Russian crude oil import takes effect, imports from Russia still make up 15-20% of the EU’s seaborne crude oil imports. Buyers in the EU have found new suppliers for about half of its previous Russian crude oil imports, but still need to find new suppliers for about 5.5 million mts of crude oil per month. If Joe Biden does not sell them crude oil out of the US Strategic Petroleum Reserve (SPR), they will have to pay a pretty penny for that much crude.
Following a bilateral meeting on Thursday, the energy ministers of Saudi Arabia and Iraq reiterated their support for the oil production cut agreed upon last month.
Tidbits
Refinitiv Ag Research raised their Brazil corn production estimate to 127.9 million mts. (USDA 126 million). Everyone continues to lower Argentina’s wheat, corn and bean production.
Avian flu has wiped out 50.54 million birds in the US this year, making it the worst outbreak in history. Note that a lot of the losses were last spring.
Argentina will repeat in December its "pesos for soybeans" program it ran in September which pried 9 million mt of beans from farmers and China bought them all.
MATIF March wheat was up 1.3% yesterday and North America finally sold some wheat to somebody other than Japan as Iraq bought 100,000 mts of Canadian wheat yesterday.
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Market Data
This morning:
Crude oil settled at $76.55, down $1.39
The dollar index settled at 106.06, up 0.24
December palm oil settled at 4,060 MYR, up 71. The contract high was made April, 29th at 6,384 MYR. Palm oil owns 36% and soybean oil owns 28% world market share.
December cotton settled at 81.34, down $2.60 per cwt. The contract high was made May, 17th at $133.79 per cwt. Cotton competes with soybeans and corn for acres.
December natural gas settled at $7.024, down 0.284. The contract high was made August, 23rd at $10.119. Natural gas is the primary cost to manufacture nitrogen fertilizer.
December ULSD settled at $3.2391 per gallon, down 0.1202. The contract high was made June, 17th at $4.0719. ULSD stands for Ultra Low Sulfur Diesel.
December Dow Futures settled at 34,356, up 145. The lifetime high is 36,832 on January 5th, 2022.
Rain Days Update
The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/
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