By: Arlan Suderman, Chief Commodities Economist
September 18 - Stocks slipped negative again during the morning as Treasury yields rallied, with 2-year yields hitting fresh 2-year highs and 10-year Treasuries probing 5% again. Yet, the VIX continues to trade near 15 at midday, while the dollar index trades near 100.4. Yields on 10-year Treasuries are trading near 5.00%, while yields on 2-year Treasuries are trading near 4.74%. WTI crude oil is trading near $102, while Brent is near $104 per barrel. The grain and oilseed sectors are mostly in the red, led by big technical selling in soymeal that is dragging soybeans lower, while wheat prices also see heavy liquidation on selling ahead of the weekend. Next week's focus is going to be on possible developments surrounding President Xi's Thursday visit with President Trump, with negotiations ongoing between now and then.
USDA pegged the U.S. corn yield at 178.5 bushels per acre a week ago when it released its monthly production and WASDE crop reports. That was roughly in the middle of a wide range of private industry estimates. The reduction cut overall production by roughly 200 million bushels, which USDA largely offset with a 150 million bushel reduction in expected feed usage for the year. USDA boosted its feed usage number to 6.350 billion bushels for the 2025-26 marketing year, up by nearly 900 million bushels or 16% from the previous year even though the Mexican border had closed for the roughly 1.2 million head of cattle coming north to be fed in the United States each year.
Using various forms of analysis, that feed usage number suggests that USDA over-stated the size of last year's corn crop by roughly 400 million bushels. USDA is known for adjusting the size of the previous year's crop in the September 30 Quarterly Stocks Report. I can assure you that NASS is not going to sign off on that size of a crop adjustment for last year at a time when USDA Secretary Rollins is scrutinizing NASS for inaccurate estimates. As such, I speculate that we might see something less than 100 million bushels in cuts to last year's crop and subsequent cut to last year's feed and residual, with additional cuts to this year's feed and residual over time to balance things out in the long run. Ironically, USDA's cut of 150 million bushels to this year's feed estimate in last Friday's crop report puts the total now 400 million bushels below the previous year's level at a time when the Mexican border is reopening for feeder cattle coming north to be fed in the United States again.
That then brings us back to the size of this year's corn crop. The graphic below shows USDA's track record for changes to its yield estimate between September and October. It essentially uses the same methodology to develop its yield in both months, although the crop is obviously more mature in October to give greater confidence in the results. Note that USDA hasn't changed its October corn yield by more than 0.8 bushel in the October report since 2017. That could obviously change this year, but that's its recent track record. I also looked back at the data for the past 30 years to look for other trends. I found that USDA cut its national corn yield in both the August and the September reports 8 times in the past 30 years. I then looked at the final yield in each of those 8 years relative to the September estimate. I found that the final yield was higher than the September yield in 7 of those 8 years by an average of 2.4 bushels per acre. The one year when the yield continued to fall was 2011, when the final yield came in 0.9 bushels less than the September estimate. Past history doesn't dictate what will happen this year by any means, but it certainly makes for some good discussion.
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Dry soil is slowing winter wheat planting in Russia and Ukraine, with a third of Ukraine's area in moisture deficit. Lost export revenue and costly diesel add a second risk to the size of the next Black Sea wheat crop.
September 23 – The Nasdaq hit another fresh all-time high yesterday, with the S&P 500 close to doing so as well, though stock futures are pointing to a quietly lower start to today’s session after surging higher to start the week as optimism surrounding this week’s various diplomatic pushes abounds. That optimism continues to be reflected in the VIX, continuing to hang around roughly three-week lows, trading at 14.3 this morning. The dollar is surging higher, adding to the week’s gains, as it nears the 101 mark for the first time in nearly two months. Treasury yields are off to a higher start, with 2-year yields back up to 4.80%, 10-year yields at 4.99%, and 30-year yields just above 5.32%. Crude oil prices are looking to hold their ground after a steady decline since late last week, with nearby WTI up 1.3% to trade near $91 and nearby Brent up 1.4% to trade near $100.65 at the time of writing. The ags are mostly lower to start the day, likely influenced in part by managed money selling off some existing length amid hopes for improvement regarding commodity flow through the Black Sea as part of this week’s diplomacy blitz.
September 22 – The Nasdaq and S&P 500 both closed within 1% of their all-time highs yesterday, with stock futures pointing to a quietly higher open at the time of writing. Diplomacy continues to be the theme of the week, with markets pricing in optimism, particularly in the tech sector following encouraging results from the weekend’s meeting between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. It’s also worth noting that Bessent yesterday announced the two sides would be meeting again to discuss AI safety and communication protocols in Shenzen, China in about two months, another potential sign of cooperation instead of escalation. The VIX continues to reflect optimism regarding this week’s various diplomatic pushes as it hovers near its lowest level since early September, starting the day trading just below the 14.7 mark. The dollar is sitting just above unchanged, near 100.46 at the time of writing, touching a fresh two-month high earlier this morning. Treasury yields are quietly lower to start the day, also helping bring some calm to Wall Street, with 2-year yields at 4.747%, 10-year yields at 4.949%, and 30-year yields at 5.279%. Crude oil prices continue their push lower, with nearby WTI down another 1.8% to trade near $90.30 and nearby Brent down 1.6% to trade near $98.70, both roughly two-week lows. The ags are looking at a turnaround Tuesday to kick off the session with most of the complex in the red at the break, led down by the wheat complex. Improving forecasts for planting conditions for the U.S. winter wheat crop are likely having some influence, but I’d also point out the signs of potential increasing U.S. pressure on Ukraine, which we’ll dive into in more depth below, possibly spooking out some managed money length.
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