June 10 – The S&P 500 and Nasdaq stock indices are within a stones throw of record highs this morning as the market shows its optimistic bias – a far cry from where we were two months ago. The uncertainties over the tariff war are still with us, with less than a month left in the 90-day tariff pause declared by President Trump back in April, with just one notable trade agreement to date. Yet, Wall Street is doing what Wall Street does, as it adjusts to the uncertainty, with the VIX again trading at a relatively low 17 this morning, while the dollar index trades near 98.9. Yields on 10-year Treasuries are trading near 4.45%, while yields on 2-year Treasuries are trading near 3.99%. Crude oil prices pushed to new two-month highs today as chart signals turn amid optimism about the China trade talks, while the grain and oilseed sector was again mixed to weaker.
The National Federation of Independent Businesses’ small business optimism index firmed to 98.8 for May, up slightly from the 51-year average for the index at 98. The May index came in above the 95.8 recorded in April, and above the 95.9 expected by analysts. A rise in optimism was seen in expected business conditions and sales expectations, while the uncertainty index also rose to 94. Taxes rated as the most important problem for the surveyed businesses at 18% of the responses, which was the first time that issue rose to the top since December 2020. NFIB Chief Economist Bill Dunkelberg stated, “Although optimism recovered slightly in May, uncertainty is still high among small business owners. While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth.” In other words, uncertainty hasn’t declined – it’s actually increased – but small business owners are adapting to the new conditions and making it work.
U.S. Commerce Secretary Howard Lutnick stated that the trade talks with China “are going well, and we’re spending lots of time together.” Note the comment about ‘spending lots of time together.’ Relationship and respect are critical to negotiations in the Chinese culture. That was a critical component to the success of the talks at Lake Geneva on May 10 & 11, and it appears to be at play in London this week as well. I don’t expect to see China and the United States to solve all of their issues at these London talks, but we have seen a pattern whereby the two sides announce some type of agreement each time that they meet – at least that’s what we’ve seen thus far. Both Lutnick and President Trump are repeatedly stating that negotiating with China “is not easy.” That’s the respect side of the equation. Chinese Xi Jinping must maintain an image back home that he is standing up to “the bully” image that state media has painted of President Trump in China so that he doesn’t look weak at home. Trump seems to recognize that, and he is allowing him to maintain that message for the benefit of getting something done in the talks. China found an issue that gives its leverage – its rare earth minerals that the rest of the world needs to build electronics. However, China needs access to U.S. technology used to build advanced semiconductors.
USDA reports that 97% of the U.S. corn crop was planted as of June 8, matching the five-year average for the period. Soybean planting progress as of Sunday was pegged at 90%, up from the five-year average of 88%. The critical factor is that regions in the northern and western belt that typically see the earliest frosts saw progress proceed ahead of schedule. Delays in planting both corn and soybeans continue to be a concern, but they’re in southern and eastern areas that have a bit more time. Both crops are in relatively good condition as well, aided by warmer temperatures over the past week. Let’s face it, the weekly crop ratings are a beauty contest – an assessment on how the crops look visually. They never look good in cold temperatures, but they tend to perk up when the temperatures warm to more seasonal levels, which is what happened over the past week. The corn crop rated 71% Good to Excellent this week, up 2 points on the week, and 1 point above the five-year average for the week. The soybean crop rates 68% Good to Excellent this week, up 1 point from the previous week and up 1 point from the five-year average for the week. The winter wheat crop improved to 54% Good to Excellent this week, up from 52% the previous week, and well above the five-year average for the week of 43%. Spring wheat planting is also on pace to be wrapped up early this year, with the crop rated 53% Good to Excellent, up another 3 points this week, but still 8 points below the five-year average for the week.
Last week’s cash cattle market exploded higher to new record highs, with the average cash price above $231 per cwt in Kansas, and at nearly $242 per cwt in Nebraska. The harvest pace has also picked up to around 580K per week, suggesting that packers have advanced orders for the peak barbecue season that includes Father’s Day and the Fourth of July that they need to fill. The question then is, will there be sufficient demand to sustain these price levels, despite low inventories, once we get past peak barbecue season? This has been an historic ride indeed.
