September 13 – Follow-through buying set a positive tone in Wall Street overnight, albeit a cautious one ahead of next week’s meeting of the Federal Reserve. Stock futures pushed higher despite a move by the Biden Administration to finally lock in those big tariffs on Chinese goods that it announced in May. The VIX is trading below 17 this morning, while the dollar index is trading near 101.1. Yields on 10-year Treasuries are trading near 3.67%, while yields on 2-year Treasuries are trading near 3.60% as the markets price in expectations of significant rate cuts by the Fed in the months ahead. Fed fund futures are again pricing in more than 40% odds of a 50-basis point rate cut next week, after those odds had fallen to 14% yesterday. The crude oil market is more than 1% higher, and trading back to the $70 per barrel level again this morning after Hurricane Francine did more damage to output than expected. The grain and oilseed market is also higher today following yesterday’s crop report.
China’s population is in decline. That’s a problem for a nation that strives to become the number one superpower in the world with the top military in the world. It sees the two as inseparable. China’s population is in decline after its birthrate fell below its death rate recently, with its overall net population falling by 2.08 million people in 2023. China suspended its one-child policy in 2015, but its birthrate continues to fall. The concept of one-child is now deeply engrained into the Chinese culture. Furthermore, the marriage rate in China is in rapid decline as young people currently hold a dim outlook for their future, and it is illegal to have children outside of marriage in China, suggesting that we could see an even larger drop in the birthrate going forward. Meanwhile, the existing population is aging, as healthcare gradually improves, stressing China’s retirement system. All of this provides the backdrop for China’s policy decisions – be they economic or military. That’s one reason why it is aggressively pursuing its Belt and Road Initiative to expand its economy across much of Africa, Asia and elsewhere to create new revenue channels and dependencies. Yet, it must still deal with an aging declining population. So today it took steps to raise its retirement age. The Standing Committee of the National People’s Congress, the country’s legislative branch, took steps to ratchet China’s retirement age higher over the next 15 years. The retirement age for men will slowly rise to 63, up from 60 currently. The retirement age for women will rise to 55 or 58, depending on their vocation. The current retirement age for women is 50; or 55 for those in white-collar jobs.
USDA raised its U.S. corn yield estimate by a half bushel to a record 183.6 bushels per acre on Thursday, but it more than offset the increased production with an increase in old-crop demand that cut the size of the stocks that we came into the new marketing year with on September 1st. USDA left its soybean production estimate unchanged at a record 53.2 bushels per acre. The change in the corn yield, albeit higher than the previous estimate, is relatively small, and of course there was no change to the soybean yield. This does not mean that we can’t see more significant changes in the October report as the crops finish developing and as we have more significant harvest results. But the relatively stable yield estimates from the previous month between private sources – including our own – and USDA give the market increased confidence that it has largely priced in the size of this year’s crops. We’ll still need to deal with storage issues, which can push more bushels onto the market, but this does allow the market to focus a bit more on the demand side of the ledger. It should be noted that the Midwest weather forecast is trending wetter over the next couple of weeks. That doesn’t necessarily mean that we’re going to see problems bringing in the harvest, but it does suggest that the dry down may not be as quick as we thought a week ago, reducing the risk that the crops will all be coming to down at once to amplify the storage problems.
Wheat futures rallied again overnight, pushing the lead December contracts in Chicago and Kansas City to fresh two-month highs. This too should provide some support for the corn market as wheat traders focus on a tightening balance sheet. USDA actually made a modest increase to global wheat stocks yesterday, but that was largely due to some backward revisions to Canadian stocks of several million metric tons over the past several years that offset reductions in near-term global supplies. Europe’s wheat crop was cut by 4 million metric tons. That was partially offset by a 2 mmt increase for Australia, but Europe’s crop could still see another 4 – 6 mmt in reductions going forward – some would say more – while the size and quality of the Russian crop could also see more downward revisions. The drought that hurt its winter wheat crop this year, along with its summer crops, continues into the fall, raising risks for its 2025 winter wheat crop that is being sown into the dust in many regions. In fact, we could see restrictions on Russian wheat exports at some point over the next several months if this continues, which would emphasize the tightness of exporter stocks on the global balance sheet. For now, Russian cash prices remain cheap with export shipments strong, while the futures market starts to price in some of the above factors. Something will need to give at some point to bring the two back together – one way or the other.
