Perspective: Morning Commentary for May 10

May 10 – Both stocks and commodities rang a positive tone overnight as traders wait on today’s consumer sentiment data, as well as anticipating comments from five different members of the Federal Open Market Committee scheduled to make various public appearances today. Traders believe that this week’s data has been more favorable toward Fed rate cuts later this year, and they hope that comments from these various members will confirm those rate cut hopes. The VIX is trading below 13 this morning, after breaking below that level for the first time in more than six weeks on Thursday. The dollar index is trading near 105.3. Yields on 10-year Treasuries are trading 4.48% as they rebound from yesterday’s weakness, while yields on 2-year Treasuries are trading near 4.84%. Crude oil prices firmed to trade near the $80 level again this morning as fighting intensifies in the southern Gaza Strip city of Rafah going into the weekend. Grain and oilseed prices were generally steady to higher this morning as well, with wheat again the leader on Russian weather concerns.

The European Union’s Chamber of Commerce conducted a business confidence survey of companies doing business in China. The survey revealed that China’s appeal to European countries fell to its lowest level on record this spring, while other areas of Southeast Asia and India are increasingly attractive to them. Just 15% of survey respondents viewed China as their top investment destination, while 13% considered China as their top destination for additional investment. The survey revealed that 21% of the firms had already moved, or they were considering shifting investments out of China. Three-fourths of the respondents indicated that they would still reinvest a portion of their 2023 profits in China, but more than a third reduced their reinvestment in China. More than half of the survey firms indicated that they are planning to cut costs, including reducing employees, tightening budgets and/or reducing office space. Reasons given by respondents included a bleaker economic outlook for China, geopolitical risks, and intense competition from Chinese companies. These survey responses provide an additional challenge for China. However, China continues to increase trade with countries that are a part of its Belt and Road Initiative – up 6.4% in the first four months of the year, and now accounting for 47.4% of China’s total trade. China’s trade with Latin America rose 11.7% year-on-year in the first four months of the year, while its trade with Africa rose 7.7% and trade with five Central Asian countries rose 17.9%.

USDA releases one of its biggest WASDE crop reports of the year at Noon Washington time today. It is big because it will contain WASDE’s first balance sheets for the 2024-25 marketing year, including its first field-survey based winter wheat production estimates for the new marketing year. There’s plenty of speculation around the size of the U.S. crop after drought stressed crops in the southwestern Plains this spring, although some areas of the region are noting more spring freeze injury than drought stress. Nonetheless, the production estimates take on more meaning this year amid reports of drought stress and freeze damage in southern Russia. Up to half of Russia’s winter wheat crop has noted varying degrees of stress due to a lack of moisture, although it is still early and showers are expected to decrease the area under stress to one-third over the coming days. Several regions of Russia report active replanting of crops due to freeze damage, although overall production loss estimates have been limited thus far. It’s far too early to project export restrictions from Russia for the coming year, but that would be expected to dramatically alter market dynamics if it were to occur. Russia has basically set the world cash price the past couple of years as it shipped record amounts of cheap wheat on the global export market. Otherwise, the key to today’s reports will be the scope of reductions to South American corn and soybean production estimates due to adverse weather, which should have a direct impact on U.S. export targets for the 2024-25 marketing year, directly impacting ending stocks estimates. The May WASDE report typically sets the tone for the summer’s market action.  

A general strike led by labor unions started on Friday in Argentina, bringing much of Argentina’s economy to a standstill. Oilseed workers joined in on the strike, slowing crush and export activity. But most strikes in Argentina are very short – usually a day or two – and this one was no different. Workers are back to work today, and crushers are processing newly harvested supplies of soybeans. The strike was used to protest labor reforms being debated in Argentina’s Senate as part of President Milei’s economic reform package. President Milei’s reforms are designed to pull Argentina out of the deep economic hole that it dug over recent decades created by massive social programs to be paid for largely by taxes on agricultural exports. Those taxes stifled development of Argentina’s vast agricultural resources. Milei hopes that slashing programs so that he can cut taxes will allow Argentina to realize its economic potential once again, including expansion of that country’s tremendous agricultural productivity potential. Milei’s move to reform Argentina’s economy received a boost in March when he announced that the government had logged a fiscal surplus in the first quarter – Argentina’s first since 2008 – providing evidence that his plan is working.