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Index Funds & Economy. The Corn & Ethanol Report
By: Daniel Flynn | April 2, 2024

We kickoff the day with Redbook YoY at 7:55 A.M., Jolt’s Job Openings, Factory Orders MoM, Factory Orders ex Transportation, and Jolt’s Job Quits at 9:00 A.M., Fed Bowman Speech at 9:10 A.M., 42-Day Bill Auction at 10:30 A.M., Fed Williams Speech at 11:00 A.M., Fed Mester Speech at 11:05 A.M., Fed Daly Speech at 12:30 P.M., API Energy Stocks at 3:30 P.M., LMI Logistics Managers Index and Total Vehicle sales.

The Institute for Supply Management monthly Manufacturing Manager’s Index rose to an 18-month high of 50.3 in March. This was up from 47.8 in February and above the average trade estimate of 48.4. The index was up 5% from February, marking the strongest monthly increase since October 2020, and it was up 8% from a year ago marking the strongest year-over-year increase since August 2021. Businesses reported upticks in new orders, reflecting improving demand while also reporting that backlog’s had declined. However, employment numbers also remained in retreat while prices continued to move higher due to rising raw material prices.

The South American latest weather pattern update has El Nino reaching its zenith and is quickly collapsing in the equatorial Pacific. The encircled areas reflect where cooling is occurring with the current demise of the 2023/24 El Nino most like that of 1982/83 The analog and models forecasts that La Nina be in place by August and impact global weather patterns in the last quarter of 2024. All of the models forecast strengthening La Nina into 2025. The most adverse crop impact will again centered on Argentina. The impact on Central US weather this summer will be closely followed, but it’s the speed that La Nina develops and whether a Trough of Low Pressure holds across the Gulf of Alaska which would send the jet stream into the Western US with a high pressure Ridge forming across the South Central US this summer, but the location of most extreme heat has yet to be determined. Spring rainfall totals and soil moisture will determine the Ridges position.

Now that the quarterly stocks and Prospective Plantings behind us the CBOT markets came in mixed and some traders are stunned as we have not formed a low and waiting for a follow through rally. Traders will be watching weather and the Commitment of Traders more closely. Record gold prices and rising energy prices energy values could be the pressure that is starting to underpin the grain complex. WTI crude traded above $85 a barrel for the first time since October on rising Mideast tensions and strong world demand. Nearby crude prices are trading at strong premiums to back months, a sign of stout nearby refinery demand. A further rise in WTI would break another downtrend line that extends back to the 2022 high. Investment flows into the energy and metals markets is based on strengthening world economic outlook.

Monday’s CBOT open interest expanded with soybean oil up 8,507 contracts, soybean meal up 4,378 contracts, and soybeans up 3,511 contracts. Wheat open interest gained 6,761 contracts while corn was down 2,391 contracts. It appears managed money is putting a larger net short positions in soybeans, wheat and soybean meal. The CFTC data shows that index funds are returning to raw material markets as world interest rates decline.

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