July 19 – A software update gone bad wreaked havoc on global computer systems overnight, grounding flights, while also creating problems for businesses around the world. Over half of Fortune 500 companies are believed to be users of the software creating the problem, demonstrating the vulnerability of the world’s core Internet infrastructure. Stock futures are handling the crisis relatively well yet at this point, with a mixed to firmer bias, but the VIX hit a fresh 12-week high to trade above 16 this morning. The dollar index is trading near 104.3 as it continues yesterday’s reversal higher. Yields on 10-year Treasuries are trading near 4.24%, while yields on 2-year Treasuries are trading near 4.51%. Crude oil prices mixed to weaker this morning, but well off their session lows. The grain and oilseed markets are mostly higher this morning.
China’s markets were mixed today, as they reacted to the rather vague statement released at the end of the Third Plenum policy meeting that concluded after the markets closed on Thursday. There are many interpretations of the statement, which I referenced yesterday. But the bottom line is that the statement failed to inspire traders, as well as consumers. They need clarity regarding the specifics of how authorities expect to reach their goals as they seek a balance between growth and security objectives. China’s leadership avoided taking bold steps to boost the economy, but they focused on staying the course to play the long-game – focused on their long-term objectives of keeping the yuan relatively strong to compete with the U.S. dollar. They’re willing to allow the economy to suffer near-term for the longer-term goal of rising above the United States. Increased regulation appears to be the direction, rather than increased economic freedom for businesses to operate. It was noteworthy that the statement omitted its often-used phrase that the market is the decisive force in the economy. That led to speculation that the government is going to double-down on market intervention in its economic decisions going forward.
Former President Donald Trump gave his nomination acceptance speech last night, while pushing his “America First” agenda that included harsh words on China. The growing expectations that Trump may be the next president raises fears on both sides of the Pacific that commodity trade between the two countries may be more challenging in the next four years. That has led to speculation that China may get more aggressive in purchasing new-crop U.S. soybeans for delivery before January 20 when Trump would take office. We’re still unable to confirm whether a July 18 reported sale of 18.7 million bushels of U.S. new-crop soybeans to “unknown destinations” was in fact a sale to China’s state-backed Sinograin, who buys for China’s reserves. It is commonly believed that China’s commercial crushers are still patiently waiting for lower prices before they buy, believing that a big crop is on its way that will further pressure prices downward.
Meanwhile, China and Russia are collaborating on a new payment system called “Mir,” according to industry reports. The system is reportedly being set up by the Bank of Russia to bypass the sanctions put into place by the West to punish Russia for its war on Ukraine. Those sanctions have been hitting Chinese banks who participate in payment transfers, but the alternative system would in theory allow them to work around those sanctions. Meanwhile, the sanctions appear to be working. Chinese exports to Russia dropped by 8.1% in June, after falling 5.1% in May. Chinese exports to Russia were down 1.2% for the first half of the calendar year, after being up 76.9% the previous year. China’s determination to tie itself with Russia while defeating the West will continue to add geopolitical risks in trade, while also increasing risks of military conflicts. This also comes at a time when the Biden Administration is reportedly considering more sanctions on technology sales to China. We continue to drift toward deteriorating condition that are impacting trade with China, supported by both Administrations, but in different ways.
Grain and oilseed prices firmed across the board overnight in what appears to be a mix of fundamental news and chart-related buying. The recent collapse of prices uncovered some end user buying at what is often multi-year lows where producers had little interest in selling. That doesn’t mean that prices can’t go lower from here, but for now, they are finding some support. There’s still a lot of corn in the farmer’s hands that needs to be moved before this year’s harvest, which has fund managers and end users remaining patient at this point, with end users just buying what they need for now. Wheat is a bit of a different story. Farmer selling has slowed, but end users are growing more concerned about global quality wheat supplies amid reports now of quality issues with the crop in both France and Germany. That has the market a bit more focused on spring wheat heat and dryness in the U.S. northern Plains, southern Canadian Prairies, and the Black Sea Region. Those who absolutely need protein are most concerned, while many others can adjust their blends to what is available, once that is better known. But in the near-term, that explains the support for Minneapolis wheat that emerged yesterday, while Kansas City rides its coattails.
