Perspective: Mid-Day Commentary for August 7

By: Arlan Suderman, Chief Commodities Economist

Mon, 07 Aug 2023, 16:38

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

August 7 - Wall Street kicked off the new trading week on a positive note ahead of this week's inflation data. We should get updated consumer price index data for July on Thursday, followed by producer price index data on Friday. Wall Street continues to anticipate a pivot in Federal Reserve rate policy over the next six plus months, even though there are growing signs that wage inflation remains too high, with new evidence of re-emerging commodity inflation.

The VIX is trading just above 16 at midday, which is about a full point below last week's two-month high above 17. This suggests some elevated nervousness on Wall Street following a relatively calm complacency for much of June and July. The dollar index is trading near 102.1 as Treasury yields rally at midday, after breaking below 100 in mid-July. Yields on 10-year Treasuries are trading near 4.10%, with yields on 2-year Treasuries trading near 4.77% as the inversion continues to narrow. Most of that narrowing has come as the longer-term Treasuries have rallied while the 2-year Treasuries traded sideways. Crude oil prices are modestly lower at this hour, after briefly touching fresh three-month highs earlier in the session. Prices find support from tightening global supplies, a resilient economy and from increased Black Sea risks following a weekend attack on a Russian military tanker in the Kerch Strait. The elevated Black Sea risks supported Chicago wheat prices, while soybean prices tumbled through chart support on weekend rains, with corn caught between the two.

USDA inspected 14.8 million bushels of corn for export in the week ending August 3, as shown below, along with 10.4 million bushels of soybeans, 10.1 million bushels of wheat and 1.3 million bushels of grain sorghum. Export demand for US grain and oilseeds remains weak as we move through the summer. Export inspections for shipment to China were nearly non-existent, with just 0.03 million bushels of wheat and 0.01 million bushels of soybeans included, but zero corn or grain sorghum.

Marketing year to date corn export inspections total 1.386 billion bushels, which is down 33% year-on-year and 75 million bushels below where we'd expect to be on this date in order to hit USDA's target for the year that ends August 31. I recognize that the total looks well below USDA's target, but remember that USDA is not required to inspect all export shipments. The rest of the shipments show up on the Census Bureau data, that is typically delayed by six weeks or so. Nonetheless, look for USDA to again cut its old-crop corn export target. It should do the same for its new-crop export target as well, but I don't look for USDA to do that until this fall. Marketing year to date soybean export inspections total 1.867 billion bushels, which is down early 7% year-on-year. The total still exceeds the seasonal pace needed to hit USDA's target by 13 million bushels, although that surplus continues to rapidly evaporate. We may see USDA eventually cut the old-crop export target by a bit more. Marketing year to date wheat export inspections total 111 million bushels, down 21% year-on-year and 26 million bushels below the seasonal pace needed to hit USDA's target for the year. Marketing year grain sorghum export inspections already exceed USDA's target, and they suggest that USDA may bump that target by another 10 million bushels or so.

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