August 23 – Stock futures reflected trader optimism overnight ahead of highly-anticipated comments from Federal Reserve Chair Jerome Powell at the Jackson Hole Economic Symposium later this morning. The VIX is trading near 17 at this hour, while the dollar index is trading near 101.5. Yields on 10-year Treasuries are trading near 3.83% ahead of Powell’s speech, while yields on 2-year Treasuries are trading near 3.99%. Crude oil prices are roughly 1.5% higher this morning, while grain and oilseed prices are mixed once again this morning.
All eyes are on Jerome Powell this morning. The market is in full expectation of a 25-basis-point rate cut in mid-September, followed by an aggressive rate cut schedule that has rates 200 basis points lower by next summer. That’s an unrealistic expectation, based on recent economic data, but that’s nothing new for Wall Street. The markets have been wrong about Fed rate policy for the past several years. The question here is, will Powell say anything to correct their expectations? Of course, I’m assuming that Powell has not been influenced by these market expectations, and that he understands the unprecedented influence of fiscal stimulus on our current economy, via the CHIPs Act, the IRA, student loan forgiveness, etc. Many economists continue to argue that we’re close enough to the 2% inflation mandate, and that momentum is sufficient to take us there, justifying a return of to real natural levels. There’s a debate about what level that should be, but I believe that misses the point. I do believe that inflation is heading lower currently, so I agree with the first point for current trends. My primary contention is that our nation’s monetary base is trending higher at a time when the Fed is shrinking its balance sheet – pulling money out of the economy. It’s doing so because of the above-mentioned fiscal stimulus. That means that the money is still in the system to quickly bring back inflation if the Fed does what the markets want it to do. I’m trusting that Powell and other members of the Federal Open Market Committee are smart enough to see that.
The Canadian rail strike is ending as quickly as it started. I said previously that these strikes rarely last long, because government steps in to save the nation the pain of the strike. The strike was set to begin yesterday, and the railroads locked out the workers. The government stepped in today. The Canadian Railway returns to work today, and the Canadian Pacific Kansas City Railway is expected to soon be back to work as well. There’s been a lot of talk this week about how the strike would impact the commodity futures market. For that to happen, we needed to see a very prolonged strike, and we simply did not expect that to happen. It has not.
The Chinese yuan made up 4.74% of global trade in July, according to the SWIFT international payment platform, which made it the fourth most used currency for trade for the ninth consecutive month. That seems like a low number, but it is roughly double where it was less than two years ago in November 2022. Keep in mind that the BRICS coalition has already set up an alternative payment platform to the SWIFT that facilitates greater use of the yuan. The U.S. dollar was again the top currency used in trade at 47.8%. China is playing the long game. It believes that the United States has the top economy because it has had the global currency of choice since World War II. China has delayed notable stimulus of its economy to sustain its long game of seeing the yuan gain status.
Day 4 of the Pro Farmer Midwest Crop Tour resulted in yield estimates for Iowa and for Minnesota. Tour participants spread out across Iowa, but they only sampled a small fraction of southern Minnesota – the very part that was most impacted by the record June rains that created massive flooding and ponding problems, similar to what tour participants saw in southeastern South Dakota on Day 1. Iowa’s corn yield was pegged at a record 192.8 bushels per acre, up from 182.8 bpa the previous year, and up from the three-year average for the state of 185.8. Do not compare the tour’s yield results to USDA’s estimates, but rather compare them to previous years of the same tour. Pro Farmer’s estimates will nearly always be below USDA’s estimates. The tour found above average corn yield estimates in six of the seven states surveyed. Minnesota was the state that came in below, due to the massive problems that have been well documented in southern Minnesota. That state’s corn yield was pegged at 164.9 bpa, down from 181.3 bpa the previous year, and down from the three-year average for the tour of 183.1 bpa. Iowa soybean pod counts for a 3’ X 3’ square averaged 1,312, up from 1,190 the previous year, and up from the three-year average of 1,194. Minnesota pod counts came in at 1,037, up from 985 the previous year, but very close to the three-year average of 1,038. Pro Farmer will release its official yield and production estimates later today. Those estimates will be based on observations from the crop tour, as well as other information gathered from areas not toured during the week. The Pro Farmer estimate historically tends to come in below USDA’s final estimates, and that is again expected to be the case this year amid expectations that favorable August temperatures will result in larger seed sizes that produce larger September harvest yields than August crop tour yields.
