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By: Arlan Suderman, Chief Commodities Economist
February 11 - Good news is bad news on Wall Street. Stocks pushed higher following the release of this morning's impressive jobs report, but turned lower when investors realized that the good jobs data likey means lower chances to get another rate cut from the Federal Reserve any time soon. The odds of a March rate cut fell to just 6% this morning, down from 20% yesterday. It's this Wall Street preoccupation with Fed policy that Kevin Warsh would like to see decline if he is named as the next Chair of the Fed. This didn't used to be the case, but it evolved as the Fed focused increasingly on transparency over the past 20 years. Transparency looks good at face value, but it turned into an obsession that is unhealthy in many ways.
Stocks opened higher, but then turned lower on the above as investors fretted about the risk of not getting a rate cut. Friday's inflation data is also expected to weigh in on the decision one way or the other. The Fed made it clear that lingering inflation risks were its primary reason for being reluctant to cut rates further at this time, while a soft jobs market was the primary motivation for additional cuts. This morning's jobs report took the latter argument off the table, at least for now. The VIX firmed back above 18 as stocks slid lower, while the dollar index trades just above 97.0. Yields on 10-year Treasuries are trading near 4.17%, while yields on 2-year Treasuries are trading near 3.51%. Crude oil prices are still in positive territory, but they're well off their morning highs. The grain and oilseed sector continues to feature modest losses in the corn and soybean markets, while wheat prices are quietly mixed.
USDA's Annual Outlook Forum is scheduled for the end of next week. There will be a lot of media hype about the Forum, with a lot of numbers released by the agency regarding future crop balance sheets. We at StoneX will report those numbers to satisfy the curiosity of many observers. But let's put some perspective on those numbers. USDA develops 10-year baseline projections each fall for budgeting purposes. There's value in that, but the hype puts more value in that then it should. First, I don't recall a time in the past four decades that the agency identified an emerging trend before the industry already knew about it. Second, 10-year projections rarely play out. As such, there is only one estimate that I'm looking for next week, and that is USDA's trendline yields for the coming year, as those will be what I will expect USDA to use when it releases its first 2026-27 balance sheets in May. Everything else will change by then.
U.S. commercial crude oil stocks (excluding the Strategic Petroleum Reserve) rose 8.5 million to 428.8 million barrels in the week ending February 6, putting them just 3% below the five-year average for early February. Gasoline stocks rose by 1.2 million barrels, pushing them 4% above levels typically seen in the first week of February. Distillate stocks dropped by 2.7 million barrels, placing them 4% below seasonal levels. Ethanol stocks firmed to 25.2 million barrels in the week ending February 6, up from 25.1 million the previous week, but down from 25.7 million barrels in the same week last year. Ethanol production rebounded strongly from the previous week's weather-related collaspe to 1,110K barrels per day, up from 956K barrels per day the previous week, and up from 1,082 the previous year. The production of ethanol utilized an estimated 110.4 million bushels of corn last week, up from 95.0 million the previous week, and up from 105.1 million bushels in the same week last year. Estimated marketing year to date corn use for fuel ethanol totals 2.439 billion bushels, up 8 million bushels from the previous year's pace.
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A strong super El Niño has started, but the crop damage that would lift food prices is still expected to land between September and December. Indian wheat area and Southeast Asian palm oil production sit at the front of the transmission chain, with Brazil the larger unresolved question.
Damage to Black Sea ports has stalled grain exports, but the more serious risk is now forming on the farm. Collapsed farmgate prices and a Russian fuel crisis have put part of the wheat harvest in question.
August 13 – The major stock indices traded quietly mixed overnight ahead of this morning’s weekly job numbers and producer price index data. Like Wednesday, this morning’s data was considered good as well, providing support for stocks while generally allowing Treasury yields to slip a bit lower. The VIX is trading near 14.4, which is just above yesterday’s new low for the year. The dollar index is trading near 99.8. Yields on 10-year Treasuries are trading near 4.64%, while yields on 2-year Treasuries are trading near 4.15%. WTI crude oil is trading near $81 per barrel, while Brent trades near $87 per barrel. Wheat prices again firmed overnight on geopolitical risks in the Black Sea Region, while corn and soybean prices pulled back modestly from yesterday’s big gains.
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