August 21 – Stock futures drifted cautiously higher overnight as traders brace for what might be revealed in the minutes of the latest Federal Open Market Committee meeting when they are released this afternoon. That will be followed by the start of the Jackson Hole, Wyoming Economic Symposium on Thursday, with a focus on Fed Chair Jerome Powell’s address on Friday morning. The VIX is trading firmer near 16 this morning, while the dollar index is trading near 101.4, after posting a new low for the calendar year earlier in the session. Yields on 10-year Treasuries are trading near 3.80%, after posting fresh two-week lows, while yields on 2-year Treasuries are trading near 3.96%. Crude oil prices are modestly higher this morning, as they bounce following a drop below $73 per barrel earlier in the session on demand concerns, while the grain and oilseed sector is mixed to higher in early trade.
Traders hope that today’s Fed minutes will show the depth of the debate held within the meeting that might provide more insight into the possible scope of rate cuts to come. Wall Street is currently pricing in expectations of a 25-basis point cut next month, with 100 basis points of cuts by December, and up to 200 basis points of cuts by next summer. Such thinking defies logic in my opinion, unless the economy goes into meltdown mode between now and then, and I see no such evidence at this point. I’ve previously outlined how the U.S. monetary base is still trending higher, despite the Fed’s current policy for shrinking its balance sheet. That’s largely due to the massive fiscal stimulus still being injected into the economy by Congressional spending and by the president’s student loan forgiveness programs. Yes, one can rightfully argue that the housing sector and much of the manufacturing sector are in a recession. But the economy as a whole is not. In fact, much of the daily and weekly data argues that the economy is regaining momentum. Cutting rates now provides additional stimulus and 200 basis points of cuts would inject an extra dose of caffeine to the economy that would likely re-energize inflation once again. I do expect the Fed to cut its benchmark rate by 25 basis points next month, because that seems to be the path that it is communicating currently. Yet, I believe that a 50-basis point cut would communicate to the markets that “the economy must be in trouble,” and it would result in over-stimulus for the economy. I believe that this Fed understands that, and that it will show restraint.
Indiana is on pace for a bin-buster soybean crop, according to findings yesterday on the eastern leg of the Pro Farmer Midwest Crop Tour. In fact, the statewide average pod count for a 3’ X 3’ square was 1,409, which was the highest state average pod count for any state on the tour in 22 years. The total was up 7.6% from last year’s total of 1,310 pods, which resulted in a state record yield, and well above the three-year average for Indiana on the tour of 1,239 pods. The high pod count was credited to timely moisture from the remnants of Hurricane Beryl that passed through the region in late July. Indiana’s average corn yield was estimated at 187.5 bushels per acre, up from 180.9 bpa the previous year, and above the three-year average tour yield for the state of 184.1 bpa. The western leg of the tour saw an average Nebraska pod count of 1,172, which was the largest since 2021, up from 1,160 pods last year, and up from the three-year average of 1,150 pods. Nebraska’s average corn yield was estimated to be 173.2 bpa, up from 167.2 bpa in 2023, and up from the three-year average of 169.4 bpa.
Today’s tour focuses on the state of Illinois on the eastern leg and the western third of Iowa on the western leg. USDA pegged the Illinois corn yield at a record 225 bpa on August 12, with a soybean yield of 66 bpa, so tour participants will be eager to see if the crops can measure up to such lofty expectations. I highlighted a graphic of August temperature rankings in my Midday Perspective commentary yesterday, showing that regions west of the Mississippi saw August average temperatures in the top quartile of the last 132 years for being cool/mild in the first 20 days of the month. That tends to lengthen the maturation process of the crops, resulting in larger seed sizes that tend to produce higher yields when harvested in September than what was calculated in field tours in August.
Chinese buyers bought an estimated 20 cargoes of soybeans last week, according to our sources on the ground, with roughly half coming from Brazil and half sourced from the United States. That’s lower than the 25 – 30 cargoes per week that is more normal for the period. Brazilian farmer cash sales slowed during the week as the dollar lost value, resulting in a lower flat price for them once currency conversions are factored in. Brazilian farmers are believed to have nearly a fifth of last year’s crop in their possession yet, which will need to be moved ahead of their January harvest. Chinese soybean imports in the first seven months of the calendar year total 58.3 million metric tons, down 6% from the 62.3 mmt imported in the same period last year. U.S. soybeans accounted for 22% of the total. U.S. soybean shipments into China are down 7.22 mmt or 265 million bushels for the marketing year that began September 1, and that trend is expected to continue for the next marketing year as well.
