By: Arlan Suderman, Chief Commodities Economist
Today's Perspective Video: War, Weather & WASDE
August 17 - The major stock indices were generally weaker at midday in relatively quiet trade. Meanwhile, the energy and grain and oilseed markets found good support from war risk today - wars in both the Middle East and the Black Sea. The VIX is trading near 15, while the dollar index trades near 99.5. Yields on 10-year Treasuries are trading near 4.71%, while yields on 2-year Treasuries are trading near 4.19%. WTI crude oil is trading near $83, while Brent trades near $89 per barrel. Soyoil prices pulled soybeans higher with sunflower oil shipments out of the Black Sea curtailed due to the war. Corn prices firmed on strong export demand and weaker yield risks.
The Empire State manufacturing index posted its strongest level in four years today with a reading of 20.6, up another five points on the month. New orders and shipments posted gains, along with a strong increase in unfilled orders and delivery times, while inventories dropped. Employment levels and the average work week both rose modestly this month as well. This is reflective of the solid manufacturing resurgence that we are seeing in the economy. Other data saw the housing market index rise to 35 in August, up from 34 last month, and up from 32 a year ago, but still low overall. Current single family sales bumped a point higher to 42, leading to the increase, while the six month outlook and buyer traffic both remained flat on the month.
The Pro Farmer Midwest Crop Tour is midway through Day #1 of walking muddy fields and posting pictures on social media. The focus thus far has been on lower yield potential from the previous year for both the eastern and western legs of the tour, highlighting soggy fields, drowned out spots, wind damage and increased disease potential. That's not a surprise, but it helps underpin prices at a time when demand is strong. Even so, one observer noted the slow maturity of the crops on the eastern leg of the tour, noting that this month's weather can still notably impact yields.
USDA inspected 75.2 million bushels of corn for export shipment in the week ending August 13 - a strong showing for August when South America is exporting new crop supplies. Brazil's ethanol boom continues to limit its exports, but Argentina stated today that it set a new record for any month in July by exporting more than 200 million bushels (5.14 mmt) during the month. The Rosario Board of Trade puts this year's Argentine corn crop at 70.5 mmt (2.775 billion bushels), up from USDA at 63 mmt, and up from last year's crop of 49 mmt. That makes today's U.S. export number even more impressive, as South American exports typically cut into demand for U.S. corn this time of year. Soybean inspections slipped to just 9.9 million bushels last week, but the market is more focused now on Chinese buying for the new marketing year that starts September 1. Wheat export inspections last week were a solid 18.1 million bushels.
The National Oilseed Processors Association reports that its members crushed 216.647 million bushels of soybeans in July. That suggests that total crush that includes some non-member activity should come to near 220.2 million bushels. That would leave 215.7 million bushels for August total crush in order to hit USDA's current target. We can reach that, but we might fall just short as processors struggle to find enough soybeans to crush, and so they start fall down time for maintenance. Soybean oil stocks came in at 1.360 billion pounds on July 31, the lowest since last October and down 9.4% from the 1.501 billion pounds on hand a month earlier. The incentive to crush is there where physically possible.
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Black Sea export revenue has collapsed and the pressure is landing on next season's winter wheat and rapeseed planting. Falling farm income, rising freight costs, Russian state support measures and European dryness now shape the acreage decision more than the war headlines do.
August 19 – Stock futures were quietly mixed for much of the night. Two wars continue to weigh on investor sentiment, but the economy continues to push forward. Treasury yields pulled back a bit overnight, but the trend remains higher. Yet, the VIX continues to trade near 15 this morning, which is a relatively low level reflecting a sense of complacency. The dollar index is trading near at an 11-week low near 99.0 as it slips lower in recent days, helping to offset a slow rise in commodity prices. Yields on 10-year Treasuries are trading near 4.64% after hitting fresh 19-month highs yesterday, while yields on 2-year Treasuries are trading near 4.17%. WTI crude oil is trading near $85, while Brent trades near $91 per barrel this morning.
August 18 – Stock futures continued to leak lower overnight amid escalating tensions on two war fronts, and as Treasury yields push higher. The VIX inched higher to trade near 16 as well, although that is still relatively low. Even so, it is firming. The dollar index is trading near 99.6 as investors assess Japan’s financial stability. Yields on 10-year Treasuries are trading near 4.74% at this hour, after posting a fresh 19-month high this morning, while yields on 2-year Treasuries are trading near 4.20%. WTI crude oil is trading near $85, while Brent trades near $91 per barrel. The grain and oilseed markets are firmer this morning, garnering support from solid demand, more yet unconfirmed reports of hits on grain boats in the Black Sea, and amid crop tour results that put some doubts on the size of this year’s crops.
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