August 19 – The Federal Reserve will once again be in the spotlight this week as traders focus on the Kansas City Fed’s Jackson Hole, Wyoming Economic Symposium that starts on Thursday. Stock futures were mixed with a firm tone to them early this morning, while the VIX firmed to trade above 15 and the dollar index dropped to fresh seven-month lows to trade below 102.3. Yields on 10-year Treasuries are trading near 3.89%, while yields on 2-year Treasuries are trading near 4.07% as the yield inversion slowly broadens again. Crude oil prices are mixed, while the grain and oilseed complex was quietly mixed as well overnight. Wheat futures sank on weak global cash prices, while corn and soybean prices saw very modest gains ahead of this week’s big Midwest crop tour.
Wall Street clearly has its eyes on the Federal Reserve this week. We’ll get the minutes of the last meeting of the Federal Open Market Committee on Wednesday, revealing greater insight into the discussions regarding policy within the Fed. This year’s annual Jackson Hole Economic Symposium starts on Thursday, with Fed Chair Jerome Powell addressing participants on Friday morning. The symposium is known for providing greater insight into future monetary policy direction, so it will garner the attention of the global financial world. Three weeks ago we saw a focus on how the yen-carry trade unwind had stimulated a global stock market rout. We are far from done with the yen-carry trade unwind, suggesting that more volatility may still be ahead for the markets. The yen surged in value versus the dollar overnight as traders positioned for this week’s developments. Global traders expect Powell to pave the way for rate cuts at this weekend’s symposium, which may pave the way for foreign money that has been chasing the currency of the country with the most hawkish central bank to search for new opportunities. The bottom line though is that market observers expect the gap to narrow between U.S. and Japanese interest rates going forward, which may lead to shifts in global money flow.
Chinese authorities announced that they will double subsidies in place to encourage consumers to replace old cars with new ones – namely electric vehicles. They hope this will help stimulate demand at a time when cars are backed up on lots, with fierce price wars seeking to draw a fearful consumer into the showroom. Meanwhile, foreign direct investment (FDI) in China fell 29.6% between January and July, with losses trending higher. Losses would have been worse if not for Germany increasing FDI by 26.4%, and Singapore increasing it by 11% year-on-year.
The annual Pro Farmer Midwest Crop Tour started early this morning, and it will continue over the next several days as dozens of cars spread out on predetermined routes across the Midwest. Each car will follow a set procedure to randomly select corn and soybean fields to sample. Tour participants will both subjectively and objectively assess the fields selected, taking samples in the process. Soybean pod counts will be made for comparison versus previous years on the same route, while corn ears will be pulled, with kernel counts made on those ears. Those kernel counts will be multiplied by the calculated ear population, and then divided by 90,000 kernels per bushel. The same method is used every year on the same routes to provide value in comparing data between years over the history of the tour. The tour is broken into two legs – one going through the western Midwest starting in southeast South Dakota, while the other through the eastern Midwest starting in Ohio. The two groups will meet to compare notes in southeastern Minnesota on Thursday evening. Pro Farmer will issue its official yield and production estimates on Friday. Those estimates are not merely a product of the tour sampling, but they will also take into account portions of the Corn Belt that are not included on the tour routes, as well as other data that the tour sponsors believe is pertinent in assessing the crops.
Social media will be filled with reports from the field including pictures and data throughout the week, providing the markets with their best idea about the size of this year’s corn and soybean crops to date. The tour takes place within a backdrop of high expectations – record crops. August weather for the most part is quite favorable for crop development. There are some dry areas, but the mild temperatures decrease the moisture needs of the crop while slowing the maturation process. A crop that matures slower tends to have larger seed size – therefore higher yields. But all of that is already priced into the market. The question will be, will this week’s tour indicate that this year’s yields might be even larger than expected, or will they suggest that perhaps we’ve over-estimated their potential? It will be a relatively dry week for the tour, which may result in more dry soil reports, but temperatures should also be seasonally pleasant for the four, especially in central and eastern areas. Keep in mind that tour participants will be assuming 90,000 corn kernels per bushel, but August weather conditions suggest that that number may be considerably lower, resulting in even higher yields at harvest. That’s how the tour will set the tone going through the week, with the next significant data being actual harvest results and USDA’s September 12 crop report.
