By: Arlan Suderman, Chief Commodities Economist
Today's Perspective Video: What Record Soybean Crush Means for Exports
August 21 – Stock futures rallied overnight, despite a plethora of negative headlines flowing from the media. One can read the news this morning and fall into despair, but then look to see positive stock futures trading just below recent record highs. The VIX is again trading near 15 this morning, with the dollar index trading near 98.7 as it sits at three-month lows. Yields on 10-year Treasuries are trading near 4.71%, while yields on 2-year Treasuries are trading near 4.20%. WTI crude oil is near $87 per barrel, while Brent trades near $94. The grain and oilseed markets traded mostly weaker overnight as we approach a weekend when the headlines are sure to continue to flow from both the Middle East and Black Sea wars, although we also saw big flash sales from USDA this morning.
U.S. Treasury Secretary Scott Bessent told reporters that the United States is about to impose “the toughest sanctions in history” on Iran, with the details to be announced on Monday. His comments followed President Trump’s threats a day earlier warning of economic consequences for any country providing “any type of lifeline to Iran.” Bessent was asked whether the sanctions would apply to China as well, which purchases the bulk of Iranian oil on the market, to which Bessent wisely stated that some conversations are best had in private. The volume of Iranian oil on the water and available to China is expected to dry up over the coming month due to the current U.S. blockade of Iranian ports. Both China and the United States have chosen to have private conversations about a series of issues in which they are in opposition over the past couple of years, based on the relationship of respect that President Xi and President Trump have developed for one another. Both of them have their red lines, but they choose to discuss those red lines in private, which reduces the risk that the other side would have to publicly respond to avoid looking weak. They understand that about each other. But there is no doubt that China’s help for Iran will be a significant topic of discussion leading up to and when the two meet on September 24.
It was nearly 10 months ago when the two met in South Korea to discuss trade. Significant differences separated the two, but they both needed things from each other. Both faced political challenges at home. President Xi offered to allow some rare earth minerals to flow to the United States, among other things, while also agreeing to purchase 12 million metric tons of U.S. soybeans in the current marketing year, followed by 25 mmt in each of the next three years. Thus far, China has lived up to that agreement despite their many differences since then. They met again in May, and China agreed to purchase an additional $17 billion per year of U.S. Ag commodities above and beyond the above-mentioned soybeans. It has not yet shown whether it will live up to that agreement, or if so, how it will live up to it. That will likely be a topic of conversation leading up to the meeting on September 24. I can almost guarantee that the negotiators are talking informally on nearly a daily basis, based on how the two Administrations prioritized that during Trump 1.0. The $17 billion in Ag products will be part of Xi’s leverage, while part of Trump’s leverage will be the Iranian sanctions. The two will likely agree to some sort of strategic stability regarding Taiwan, as that is definitely one of Xi’s red lines.
The U.S. midterm elections are just 74 days away. Iran knows that the midterm elections are crucial for President Trump to sustain his current level of power in U.S. policy. Seventy-four days is a very short time in their mind to hang on versus President Trump’s sanctions. But that also means that President Trump has just 74 days to make his case to the American voter, meaning that he is likely to pull out all the stops in putting pressure on Iran to stop its nefarious activities that are contributing to the risks to the U.S. and global economy. For decades U.S. presidents have put sanctions on Iran that looked like they were being tough on the rogue nation, but that in reality were not harsh enough to bring an end to the hostilities. This is a do or die moment in which Trump must find a way to do so, or Iran will have established its ability to stand up to the United States once and for all. At stake is Iran’s future as a power, as well as that of the United States. Fail, and other nations will start to yield to Iran in fear, increasing its power. Succeed, and the Iran threat can finally be put to bed. This is the pivotal moment in history for both Iran’s and the U.S.’s perceived stance among the nations.
Grain and oilseed prices rallied this week as market participants focused on reports of disappointing corn yields as reported by the Pro Farmer Midwest Crop Tour. The tour is now over and no longer making headlines. Sustaining this momentum will necessitate fresh fodder for the bulls, and that would likely have to come from the demand side of the ledger. The Black Sea war can contribute to that. This year’s soybean crop could be a big one, but demand will likely be bigger if China fulfills its commitment. Corn is also leaning that way, but it still needs a few more pieces to fall into place. We can argue about whether this year’s U.S. corn yield is 179, or 182, or 184 bushels per acre, but in the end, I expect demand to be the driver of where cash prices go from this point forward.
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Two countries handle a share of world wheat and corn exports large enough that attacks on their ports reset prices for everyone else. South America has room to gain from the disruption, but the size of that gain differs sharply between Argentina and Brazil.
August 21 – Stock futures rallied overnight, despite a plethora of negative headlines flowing from the media. One can read the news this morning and fall into despair, but then look to see positive stock futures trading just below recent record highs. The VIX is again trading near 15 this morning, with the dollar index trading near 98.7 as it sits at three-month lows. Yields on 10-year Treasuries are trading near 4.71%, while yields on 2-year Treasuries are trading near 4.20%. WTI crude oil is near $87 per barrel, while Brent trades near $94. The grain and oilseed markets traded mostly weaker overnight as we approach a weekend when the headlines are sure to continue to flow from both the Middle East and Black Sea wars, although we also saw big flash sales from USDA this morning.
Crop tour scouts are finding real damage in individual fields while the futures market keeps trading a good national crop, and both readings are correct at the same time. The gap between them is settled in the cash market, where basis does the work that a national average cannot.
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