July 11 – Wall Street chooses to see the proverbial glass as “half-full” to start trade today, believing that China will sufficiently stimulate its economy, and believing that tomorrow’s inflation data will provide the necessary data to justify a pivot by the Federal Reserve. A combination of the above provided broad support for both the commodities and the equities overnight, although modestly so, while also supporting a weaker dollar as Treasury yields slipped lower. The VIX is trading back below 15 this morning, while the dollar index is trading near 101.9 after setting fresh eight-week lows overnight. Yields on 10-year Treasuries are trading near 3.99%, while yields on 2-year Treasuries are trading near 4.88%. Crude oil prices are modestly higher on the above, while grain and oilseed prices are higher as well, led by robust gains in soybeans on disappointing crop conditions, and with corn and wheat prices finding support from expectations that the Ukraine grain initiative will soon come to an official end. Just two ships currently remain within the “safe corridor” established by the initiative. Russia reportedly sent 28 drones to attack one of the grain terminals at Odessa overnight, whereas Ukraine reportedly shot down 22 of them.
Passenger car sales jumped 8.7% month-on-month in June in China, up from 7.6% growth in May and 2.1% growth in April, providing a glimmer of positive news for China’s economy. June sales totaled 1.89 million, of which 665K were EVs. Business sentiment also inched slightly higher in China in June, although from a relatively low level. Positive momentum was seen in construction, transportation, real estate, and in information transmission and software, while additional declines were seen in retail sales, social services, and in accommodation and catering. Cinemas, airports, tourism sites and theme parks are more crowded than they were in the second quarter.
This year’s annual BRICs summit will be held August 22 – 24 in South Africa, focusing on expansion of the coalition that is led by China, Brazil, India, and Russia. This year’s summit will focus on continued work to develop a common currency to meet the needs of its membership that accounts for nearly 32% of global GDP. Many countries are currently interested in joining BRICs, including Ethiopia, Nicaragua, Venezuela, Argentina, Iran, Algeria, Saudi Arabia, and the United Arab Emirates. Saudi Arabia may join BRICs as early as the August meeting. The rapid growth of BRICs helps facilitate China being able to better cope with decoupling from the West.
The U.S. Midwest summer continues to play out pretty much as expected from a weather standpoint, with the exception that the transition took about three weeks longer than anticipated, putting Midwest crops into early distress before milder and wetter conditions set up across the region. As such, the question will continue to be whether some irreversible damage occurred to maximum yield potential during that period of stress from which crops are not fully able to recover. The overall pattern seen in an El Nino summer is a northwesterly flow over the Midwest that produces numerous storm clusters that randomly move across the Midwest to provide moisture, but these clusters are difficult for forecast models to see ahead of time. The northwesterly flow also tends to produce an overall seasonally mild weather pattern, with just periodic bouts of heat that don’t last long. The random nature of the storm clusters results in some areas missing out, while they also tend to produce severe weather that sometimes does damage, but overall, they tend to support yield potential – albeit with the caveat that maximum yield potential may already be limited by the early season stress in June.
USDA pegged the corn crop at 55% Good to Excellent this week, up from 51% the previous week. The crop rates a condition index score of 347, up from 340 the previous week, but down from the five-year average of 370. My seasonally adjusted yield model for the week is at 171.7 bushels per acre, although correlations are not strong in early July. I would anticipate that we’ll see that number trend a bit higher in the weeks ahead if we maintain the current weather pattern – perhaps into the mid- to upper-170s. The soybean crop rates 51% Good to Excellent, up 1 point on the week. It rates a condition index score of 339 this week, up 2 points on the week, but down from the five-year average for the week of 364. My seasonally adjusted yield model comes in at 49.4 bushels per acre this week. I’m probably a bit more concerned about the soybean crop’s difficulty in responding to the recent improved weather pattern. I do expect this crop’s ratings to trend higher as well if we maintain this weather pattern, but we may currently be looking at a crop somewhere between 49.5 & 50.5 bushels per acre, based on my current sense. Poor demand would still be expected to leave corn supplies ample at these yields, but they would further complicate an already very tight soybean balance sheet, necessitating that the market incentivize more Brazilian soybean acres.
