Perspective: Morning Commentary for September 14

By: Arlan Suderman, Chief Commodities Economist

Tue, 14 Sep 2021, 13:41

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

September 14 – Stock futures pulled back overnight as traders digested the details of record tax increases laid on the table by Congressional leaders on Monday, but they rallied on the release of this morning’s inflation data. The VIX traded just shy of 20 this morning, before slipping below 19. The dollar index traded near 92.4. Yields on 10-year Treasuries are trading near 1.31%. Crude oil prices crept higher to hit fresh six-week highs above $71 per barrel, while the Ags were mostly higher as well after corn and soybean crop ratings fell notably in Illinois.

Lawmakers unveiled their “pay-fors” in the $3.5 trillion spending program currently moving through Congress on Monday. Everyone loves the free stuff until we realize that it isn’t free. Somebody has to pay for it. It’s nice to say that the wealthy will pay for it, but that’s not the way the economy works. In fact, it’s not even a $3.5 trillion spending package. Congressional leaders are doing what politicians in both parties do with spending bills. They set a price tag they think the public will swallow, and then they write the bill to technically fit it. They do so by writing in a relatively short duration for a particular program so that the cost is limited, even though the full intention is for the program to continue. Taking that into consideration, the cost of this bill comes closer to $5 - $5.5 trillion.

Washington can’t find a fraction of the “pay-fors” necessary to pay for that. Anything not paid for requires added debt, which risks higher interest rates, or additional asset purchases by the Fed that increase the money supply. So why hasn’t Wall Street reacted thus far? It doesn’t expect the bill to ever reach the president’s desk, although the VIX pushed to its highest level since August 20^th on the emerging possibility that it could get pushed through on reconciliation. Most on Wall Street remain skeptical, but corporate leaders are becoming more vocal as the legislation moves through the legislative process. A bill of this size has the potential to become a major disruptor in the markets if it does make it to the president’s desk, which is why I spent some time on it this morning. That’s because the “pay-fors” would prove to be a major disruptor to the economy, impacting the commodities as well.

The consumer price index rose 0.3% month-on-month in August, down from 0.5% the previous month and below analyst expectations of 0.4%. The CPI rose 5.3% year-on-year in August, down from 5.4% the previous month, but matching analyst expectations. The core CPI that excludes the more volatile food and energy sectors rose 0.1% month-on-month in August, down from analyst expectations that it would remain unchanged at 0.3%. The core CPI rose 4.0% year-on-year in August, down from 4.3% the previous month and below analyst expectations of 4.2%. The indices for gasoline, household furnishings, food, and shelter all rose in August, with the energy index rising a robust 2.0% to contribute to consumer inflation, with gasoline up 2.8%. Both at-home and away-from-home food prices rose 0.4% month-on-month. These growth areas were offset by declines month-over-month for airline fares, used cars and trucks, and motor vehicle insurance rates. The overall energy index rose 25.0% year-on-year, while the food index was up 3.7%. The index for meats, poultry, fish and eggs rose 8.0% year-on-year, with beef specifically up 12.2%. The Fed indicated that it is willing to allow inflation to overshoot the mandated 2.0% level as long as it averages 2.0% over the long-term, although it has yet to define the term for consideration.

Delays continue to hamper reopening of ports at New Orleans as power crews struggle to restore service to terminals. Tropical Storm Nicholas is expected to bring heavy rains to the area over the next 24 hours, which will further complicate efforts to reopen terminals. Several terminals are open, but loading capacity is likely just 20-25% of normal currently. Exporters can quickly make up lost time by pulling larger quantities through the system once they are operational again, but China needs soybeans on the water soon. It will be buying cheaper soybeans from Brazil once they are available in January, although Brazilian soybeans need 45 days to cross the water to China. Nevertheless, the window for the United States to sell soybeans to China is basically from the start of harvest to January/February, so we need to take full advantage of that window. My yield models are currently very close to USDA’s current yield estimates, but keep in mind that yield estimates modeled on crop ratings do a poor job of reflecting seed size. That’s why they understate yields in years with favorable grain fill weather, and over-state them in years with higher levels of heat and/or dryness. As such, I think there is a good chance that we will see USDA’s yields erode lower from this point, reflecting the fact that late season heat and disease problems – especially east of the Mississippi – took some of the frosting off the cake. The crops are still good, but maybe not as big as expected. Wheat is stronger today following a bullish Stats Canada report lowering all-wheat production to 21.7 mmt.

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Mike CastleTue, 04 Aug 2026, 14:58

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