August 20 – The major stock indices have either already erased the losses of the stock market rout three weeks ago, or they are close to it, depending on the sector. Stock futures were mixed overnight as Wall Street again focuses on the Federal Reserve, which will release the minutes of its late July meeting tomorrow afternoon, followed by the start of the Jackson Hole Economic Symposium on Thursday. The VIX is trading near 15 this morning, while the dollar index followed Treasury yields lower amid expectations that Fed Chair Jerome Powell will use the symposium to pave the way for a series of rate cuts. The dollar index is trading near 101.7 this morning, after hitting fresh lows last seen on January 2nd of this year, while the Japanese yen continues to strengthen. Yields on 10-year Treasuries are trading near 3.84%, while yields on 2-year Treasuries are trading near 4.01%. Crude oil prices are mixed to lower again, trading near $74 per barrel at this hour, as geopolitical risks ease again, allowing traders to focus on poor China demand concerns. The grain and oilseed sector is mixed, with wheat prices steady to firm, while corn and soybean prices post modest losses.
Canada’s two largest railroads are starting to shut down ahead of an anticipated strike scheduled for a possible start on Thursday. The labor action is expected to impact both the Canadian Pacific Kansas City railroad and the Canadian National railroad. The railroads indicate that movement in the United States and Mexico will not be impacted, but yet they will be indirectly. Cross border movement has already slowed or stopped to prevent products from being stranded – particularly hazardous materials. Containers headed to Canada’s west coast are said to be diverting to U.S. ports. Some fertilizer shipments from Canada will be halted as well. The grain markets will see the impact primarily in the basis and spreads markets, with wheat the primary grain impacted. But keep in mind that Black Sea cash prices have the greatest impact on the world wheat market. In the end, the biggest impact will be felt by Canadian producers and consumers, which typically leads to the government pushing for a short stoppage. Truck hauling can pick up much of the slack from the rail stoppage, but that will tighten shipping capacity, and likely raise freight costs.
Keep your eyes on the Russia / Ukraine war, where things are heating up. We’ve largely become desensitized to the war, with the market believing that it has no meaningful impact on commodities. For the most part, that’s true, but the risks slowly rise as the war intensifies. Of note currently is the Ukrainian incursion into the Kursk region of Russia as it attempts to cut off a key military supply line, while continuing to attack Russia’s energy infrastructure with drones and missiles. Meanwhile, Poland states that it is considering shooting down Russian missiles over Ukraine territory. All of these factors could therefore also lead to even greater escalation from Russian President Putin, potentially drawing in NATO, while also risking greater attacks on commodity shipping infrastructure. The odds are still somewhat low, but the implications would be significant if / when that were to occur.
The Pro Farmer Midwest Crop Tour found both good crops and problem areas on Day 1 of its annual trek across the Midwest, as expected. That was especially true on the western leg of the tour, which started in southeast South Dakota, moving into northeastern Nebraska. Southeast South Dakota had its wettest June on record, followed by one of its driest Julys on record. This area, along with parts of southwest Minnesota and northern Iowa was ground zero for the June flooding and ponding problems. In reality, it was amazing how good the crops looked after that start, although problems areas still remain, with a great deal of unevenness in crops, as well as blank spots in fields. Corn ear populations were limited in many areas as a result of the June problems. That left crop scouts wondering whether South Dakota could reach the 162 bushel per acre yield projected by USDA, although it should be noted that the tour only looked at the corner of the state that was most impacted by the June flooding. Even so, the group projected South Dakota corn yields at 156.5 bushels per acre for the tour route, which was down from 157.4 bpa the previous year, but well ahead of the three-year average for the tour of 142.4 bpa.
Ohio’s corn yield was pegged at 183.3 bpa, down from 183.9 bpa last year, but above the three-year average for the tour of 181.1 bpa. USDA has Ohio pegged at 188 bpa. The tour does not estimate soybean yields, but rather posts pod counts. South Dakota pod counts for a 3’ X 3’ square averaged 1,026, up from 1,013 last year, and up from the three-year average of 960 pods. Ohio pod counts averaged 1,230 pods, down from 1,253 last year, but up from the three-year average of 1,193 pods. For perspective, it should be noted that the tour’s final national yield estimates have come in below USDA’s final yield in 9 of the past 12 years, after coming in below USDA’s August estimate in 10 of the past 12 years. Keep in mind my discussion from yesterday about expectations that the tour will also understate yields due to anticipated larger seed size this year as August remains quite mild for most areas.
