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Perspective: Morning Commentary for August 4

By: Arlan Suderman, Chief Commodities Economist

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Today's Perspective Video: Just How Big - or How Small - Are This Year's Crops?

August 4 – Stock futures partially rebounded from Friday’s losses overnight as investors refocus on expectations that we will see a couple of rate cuts from the Federal Reserve yet this year. The VIX is trading near 19 this morning, while the dollar index is trading near 98.6. Yields on 10-year Treasuries are trading near 4.21%, while yields on 2-year Treasuries are trading near 3.69%. Crude oil prices are more than 2% lower following OPEC’s weekend decision to continue to increase output, while the grain and oilseed markets were mixed to lower.

OPEC+ met virtually on Sunday to reach an agreement on the cartel’s September output quotas. The cartel agreed to increase output by another 547K barrels per day in September as it continues to rapidly increase the quantity of oil that it dumps on the world market to retake market share from the North American shale oil fields at current price levels. Shale oil extraction has some of the world’s higher breakeven costs, resulting in a loss of investment in recent years as low prices have discouraged expansion. OPEC+ would like to see higher prices for its oil, but it is content to seize this current opportunity to retake market share. The cartel started increasing output in April when it increased quotas by a total of 138K bpd. This weekend’s decision means that total increases through September will total 2.466 million bpd. It will meet again on September 7 to consider additional increases, when sources say that it may consider unwinding voluntary cuts of 1.65 million bpd. The increases come at a time when tariff hikes have analysts concerned about global economic growth, although some of the increases may be offset if President Trump is successful in reducing Russian exports via tougher sanctions.

President Trump has yet to decide whether he will support a 90-day extension to the current suspension of high reciprocal tariffs on China. The current suspension ends on August 12 – one week from tomorrow. Another extension was negotiated in the third round of talks between the two countries, but President Trump has not thus far agreed to accept the terms. Tensions remain high between the two sides, despite softened rhetoric in recent weeks, as illustrated by the fact that the three rounds of talks held thus far have largely just been able to reach agreements on tariff suspensions and the exchange of trade of advanced chips from the United States for rare earth minerals and magnets from China. Both countries need what the other has, but neither trusts the other. There had been some hope that negotiators might focus on a renewal of the Phase One agreement from Trump 1.0 that guaranteed Chinese purchases of U.S. commodities, but Chinese grain importers are losing confidence in those hopes.

Instead, China just made a third purchase of Argentine soymeal. That brings total Argentine soymeal purchased by China to 90K metric tons, which is approximately equal to what Chinese crushers would have produced from two panamax cargoes of soybeans. Chinese buyers are actively seeking alternative sources of meal amid expectations that U.S. soybeans may not be an option for them when Brazilian old-crop supplies begin to dry up in the fourth quarter. China already has a surplus of soybean oil from the aggressive crushing that’s been occurring due to very aggressive shipping of Brazilian soybeans in recent months. In fact, it has such a build of oil that it has become a net exporter of soybean oil. China has sold 150K tons of soybean oil to India in recent transactions for shipping between September and December. That compares to typical export rates of 20K to 30K tons per year. USDA currently estimates that China will end the current marketing year with a surplus of 43.48 million metric tons of soybeans in storage, which is just shy of 1.6 billion bushels. That’s nearly twice what China purchased from the United States in the current marketing year. The market anticipates strong domestic soybean demand in the United States in the year ahead to support biomass diesel production, but traders are slowly starting to anticipate that China may import little if any U.S. soybeans if we don’t soon reach some type of trade agreement. Meanwhile, StoneX Brazil projects that Brazil farmers will expand production in the 2025/26 marketing year by another 2%, producing 178 mmt, up 10 mmt from the past crop. That has cheap offers already on the table for first quarter 2026 shipment, with crushers able to lock in margins of $30 per mt at this early date, or better than 80 cents per bushel.

StoneX expects to release the results of its first 2025 corn and soybean production estimates after the markets close this afternoon. Those estimates will become StoneX’s first official yield estimates for the 2025/26 marketing year, based on what our customers tell us about the crops. Other private estimates are expected to follow in the days ahead, leading up to USDA’s August 12 WASDE crop report. USDA is currently surveying farmers about their yield expectations. It will add to that its own analysis based on satellite data. Satellite NDVI scores for the dozen Midwest states are currently higher than they have ever been at this time of year during the 2000s. NDVI scores alone are not a good determiner of yield, but it does suggest that USDA will be looking at some pretty bullish yield data. Of course, none of this reflects what pollination issues might be behind the husks that are not yet seen.  

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