February 1 – The broader commodity sector remains under pressure at midday, led by crude oil that is down 6% at this writing. The sell-off in commodities has its roots in overnight trade when China’s Purchasing Managers Index showed contraction in the manufacturing sector for the sixth consecutive month. That was followed by U.S. data this morning showing that consumer income rose 0.3% in December, but spending was flat versus the previous month, despite the Christmas holiday.
The U.S. PMI manufacturing index for January came in at 52.4, slightly below Wall Street expectations of 52.6, but up modestly from 51.2 the previous month. An index above 50 indicates growth, while below 50 shows contraction. The more introspective ISM manufacturing index came in at just 48.2 this morning, leaving it in a contraction phase and its poorest overall trend since 2009. In fact, it was the third month of the past four of an index below 50. Construction spending for December also fell far short of expectations.
The bottom line is that today’s data largely points a bearish picture for the global economy, suggesting that demand for commodities at large will be sluggish. Grain and oilseed prices simply lack a story to counter that trend at this point. Export inspection data for the week ending January 28 did little to change sentiment, with shipments of 26.8 million bushels of corn, 6.5 million bushels of grain sorghum, 42.4 million bushels of soybeans and 10.4 million bushels of wheat.
The dollar continues to be down nearly 500 points at this point, but well-within the up-trending channel that has largely contained the greenback for much of the past eight weeks. Yet, that has done little to support the commodity sector amid demand worries. The broader selling spread to the livestock sector as well to erase early gains as a weak economy raises concerns about weaker demand for the higher cuts of meat. Product prices are generally firm. Cash hog prices are largely steady to 50 cents higher, while cash cattle movement is quiet.
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