July 1 – We start the second half of 2025 today with the Senate still debating the tax bill, and with the White House still seeking its next trade deal, with just over a week left before the 90-day pause comes to an end. Stock futures were modestly lower overnight in the wake of the above, but the VIX is still trading near 17 this morning, while the dollar index falls to a new three-year low near 96.6. Crude oil prices are modestly higher this morning as they continue to consolidate above areas of chart support above $64 per barrel, while the grain and oilseed sector is mixed to weaker, with corn and soybean prices taking a hit on generally favorable crop conditions.
Washington politics is on full display as the world watches the Senate grapple with its version of President Trump’s “One Big Beautiful Bill.” It’s important to know that the president wanted everything rolled into one big bill due to Senate rules. The Republicans have a 53-47 majority in the Senate. The rules in the Senate require that all bills have a 60-vote majority to come up for debate, allowing the Democrats in this case to block any Republican bills that they try to advance. There is an exception though. Once per year the majority party can bring forward a budget via the reconciliation process that only needs a simple majority of 51 votes to advance. Therefore, the president knows that he only has once chance to pass a bill of any consequence through the Senate this year. As such, he’s rolling everything into one bill. That makes it more difficult to find consensus among his own party on such a diverse bill, but it’s his only shot of getting his agenda passed under these Senate rules, assuming that the minority party will block any other bills of significance that he proposes.
The prize of the bill is the extension of the 2017 tax cuts that generated a period of strong economic growth prior to the pandemic. Those tax cuts are set to expire at the end of this year, which would be one of the largest tax increases in history, if that were to occur. Tax increases are a tax on the economy. He added some campaign promises to the tax cuts, including exempting taxes on tips and lowering taxes on social security, which add to the cost of the bill. Congress must also deal with the debt ceiling prior to sometime in August when the Treasury runs out of money to pay all of its obligations, so an increase in the debt ceiling was also rolled into the bill. That angers some fiscally conservative Republicans who don’t want to see the debt ceiling increased at all. They would rather see massive spending cuts, but America is not yet experiencing enough pain to support its elected officials cutting their pet programs. That means that our debt will continue to grow.
Neither party has stopped the growth in fiscal debt – it just grows a little faster with one party than the other, but it grows with both in power, nonetheless. We will eventually pay the price for that. The bigger the debt, the greater the eventual price to be paid. There are a host of other agenda items in this bill, but those are the two big ones. Once this bill passes, differences have to be worked out with the House of Representatives, and that won’t be easy either. Conservatives in the Republican party are faced with the reality that passage of this bill continues to keep our debt growing, but failure of the bill to pass means that they will have lost their only chance to get anything passed the minority party this year, which could create a fiscal catastrophe when the debt ceiling is hit, and a major hit to the economy when taxes rise for all Americans next year. As an economist, I’ve been sounding the warning about the growing risks of our debt for several years, but I also understand that the American voters are not yet to the point of allowing their elected officials to make the hard decisions necessary to correct the course that we are on.
Yesterday’s set of USDA stocks and acreage reports were a non-event for the grain and oilseed markets, with USDA’s adjustment in corn acreage being the smallest for the June report in the past 11 years. That allowed the markets to quickly shift their focus to the current growing season, which is now the primary focus going forward. This is the time of year when crop condition ratings – which are essentially a beauty contest assessing how the crops look – tend to decline into maturity. Young crops “look” the best, while mature crops don’t look as good. Yet, yesterday’s weekly crop progress report showed the corn crop coming in at 73% Good to Excellent – up 3 points on the week – while soybean conditions held steady for the third consecutive week at 66% Good to Excellent. This led to yield models rising to above-trend levels for both crops, with the weather for the first half of July very favorable.
China essentially has no U.S. soybeans booked for 2025-26 marketing year delivery. It typically steps up its advanced bookings of U.S. soybeans for delivery in the fourth quarter of the calendar year in July. Instead, we saw China make multiple purchases yesterday of Argentine soybeans for delivery in September, November and December, seemingly sending a message to the United States. This will increasingly become a concern for traders if China remains absent from the U.S. market in the weeks ahead, raising questions about USDA’s export target.
