August 21 – Stock futures point to a higher open this morning after China’s central bank cut its 1-year interest rate by 10 basis points and as traders look ahead to Federal Reserve Chairman Jerome Powell’s comments in Wyoming on Friday. However, gains were limited by disappointment that China did not do more, which has been a recurring theme this year, but a big reason for that is likely the weak yuan. Wall Street also took note that China responded to “stopover” stop in the U.S. by a Taiwanese regional leader by quickly deploying 45 aircraft and nine vessels to briefly surround Taiwan over the weekend, escalating tensions with the West. The VIX is trading near 18 this morning, while the dollar index is trading near 103.3. Yields on 10-year Treasuries are trading near 4.33%, which is again just a short-distance from 15-year highs, while yields on 2-year Treasuries are trading near 4.98%. Crude oil prices are nearly 1% higher, while grain and oilseed prices are mixed.
This week’s focus is expected to be on Jackson Hole, Wyoming, where the Kansas City Federal Reserve district will host its annual symposium for the Fed. The symposium typically features a long list of academic speakers addressing various aspects of the economy designed to encourage creative thinking about managing the economy, but it is rare to see much input from experienced business leaders who understand the actual implications of applying those academic principles in the real world of business. The Federal Reserve, and to a great extent Congress, will continue to lead from behind in our economy as long as they continue to focus on academic answers for real world economics, in my opinion. It’s time for the Federal Reserve to show some leadership and feature proven business leaders who understand how economic principles are truly applied in the economic world. Unfortunately, I’m not optimistic that will happen any time soon. Instead, the current group think will continue to handicap policymakers in their zest to create that ever-allusive utopia economy. Nonetheless, Wall Street will be focused on Friday’s speech by Fed Chair Jerome Powell for indications of the central bank’s next move in shaping monetary policy, for that’s what Wall Street has been trained to do over the past 15 years.
Ukraine officials are close to reaching an agreement to subsidize insurance for grain carriers willing to test using their recently developed safe corridor for moving grain out of its southern ports. The safe corridor keeps ships moving through what are considered to be acceptable channels relatively near its coast toward Romanian waters before they move out into the Black Sea. Several ships trapped at Ukrainian ports since the start of the war have reportedly used the channel to leave Ukraine. The agreement would help subsidize high insurance rates for shippers willing to use the channel, with the risk index for boats wanting to get grain from Odessa and other nearby ports currently quoted at 500%. Nobody is currently willing to pay those premiums and/or to take that risk. There’s some discrepancy about how close they are to finalizing the agreement, but Ukraine hopes to have the plan put into effect as early as next month, allowing anywhere between 5 and 30 vessels to pass through what is still considered to be “a dangerous place in Ukrainian waters.”
The Pro Farmer Midwest Crop Tour started at two locations this morning. The tour is divided into two groups that cover the same routes that they’ve been traveling throughout the long history of the tour so that the results can be compared to previous years. One group moves systematically through eastern portions of the Midwest, while the other group moves through western areas. The consistency of routes makes sense from an analytical standpoint, but unfortunately it doesn’t allow participants to see corn in some significant production areas. That’s because the geographic makeup of the Corn Belt has changed a great deal over the past 15 to 20 years, with corn acreage making some dramatic shifts to the west – both to the northwest and to the southwest. North and South Dakota, along with Minnesota and Kansas are much greater players in corn production than they used to be, while production has shifted out of the east to some extent. Nonetheless, this week’s tour will provide our best look at the corn and soybean crops to date. They will post pictures of some very good crops, as well as some very poor crops on social media, and everything in between. My sense is that we’ll end of seeing a lot more problems than the crop ratings would suggest following the type of growing season that we’ve had to date, but hopefully I am wrong about that. I pay more attention to the consistency of reports from the field than I do the actual numbers. Regardless, this week’s tour participants are expected to shed light on this week’s extreme heat in central and western areas of the Corn Belt. The heat breaks this weekend, but most areas will remain dry into week #2 as well. That’s not a recipe for finishing this year’s crops on a positive note, with high nighttime temperatures adding to yield losses as well.
