Perspective: Mid-Day Commentary for August 3

By: Arlan Suderman, Chief Commodities Economist

Thu, 03 Aug 2023, 16:07

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

August 3 - Stocks still have a negative tone to them at midday, but values are stabilizing as traders try to put economic fears tied to Fitch's lower credit rating on U.S. debt behind them. The VIX is easing back to trade just above 16 at this hour, reflecting those slowly soothed nerves on Wall Street. Nevertheless, the bond market hasn't forgotten Fitch's warning yet, and those rising Treasury yields are keeping a lid on stock gains yet at this point. The dollar pulled back to trade near 102.5 at midday, while yields on 10-year Treasuries are trading near 4.19% and yields on 2-year Treasuries are trading near 4.89%. Crude oil prices are 2% higher as values rebound ahead of tomorrow's OPEC meeting, while the grain and oilseed market is mixed.

Soybean prices are strong on fresh new-crop export demand and on StoneX's 50.5 bushel per acre customer survey yield estimate that was released late Wednesday. However, wheat prices are notably lower once again on weak demand amid record Russian exports. That's helping to pull corn prices lower as well, as they lack a story of their own to move against the tide of lower wheat prices. Lean hog futures are sharply lower at midday as product prices show signs of breaking lower seasonally. Meanwhile, live cattle futures are mostly firmer on tight supplies.

Exporters sold 3.3 million bushels of old-crop soybeans in the week ending July 27, along with 96.7 million new-crop bushels. The featured buyer of new-crop soybeans was "unknown destinations," followed by 31.6 million sold directly to China. We reported earlier this week in StoneX's daily China Direct newsletter that Chinese buyers had purchased 40 cargoes of soybeans for mostly October delivery the previous week, with several of those being of Brazilian origin for September loading, while the rest were from the United States. That matches up nicely with what USDA confirmed in this morning's weekly export sales report if we assume the bulk of the "unknown destination" purchases were China, and they likely were. The graphic on the right shows that new-crop soybean sales have been very poor thus far, but last week's sales go a long ways toward starting to close the gap. However, exporters only sold 4.2 million old-crop and 13.7 million new-crop corn bushels during the week. The graphic on the left below shows how weak U.S. new-crop corn sales are currently. USDA has already cut 750 million bushels off its old-crop corn export target over the past year, but it somehow expects new-crop exports to rebound by 450 million bushels. I don't currently see a path to that, considering the size of Brazil's exportable supplies.

Economic data out of China remains concerning, despite various efforts made by its government to jumpstart the economy. Passenger car sales totaled 1.73 million in July, down 5% from the previous year when much of the country was in Covid lockdowns. That's a larger decline than the 2.6% drop seen in June, due to July sales coming in 8% below June sales. The data shows that 37% of the cars sold were electric vehicles. EV sales are up 33% year-on-year, although they were down 3% on the month, compared to being up 14.7% month-on-month in June. This suggests that the higher income earners who are first adopters on the EVs are starting to pull back purchases due to deteriorating confidence in the economy. On a related note, China's top battery maker accounts for nearly 37% of world market share for EV batteries, with its second top maker accounting for another nearly 16%. South Korea comes in second as a battery supplier to world EVs at 24% market share.

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Morning Grain Comments 8-4

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