July 15 – Stock futures pushed notably higher overnight, despite the political uncertainty created by an assignation attempt on a former president and current presidential candidate, while commodity prices generally came under pressure again. Stocks are pushing higher on expectations for a rate cut from the Federal Reserve, while commodity prices fall on soft demand relative to supplies on fears of a slowing economy. Yet, the VIX is still trading below 13 this morning, while the dollar index is trading near 104.1. Yields on 10-year Treasuries are trading near 4.22% as they bounce off last week’s four-month lows, while yields on 2-year Treasuries trade near 4.45% as the inverse between the two continues to narrow. Crude oil prices traded mixed to weaker overnight, trading near $82 per barrel this morning, while the grain and oilseed sector came under heavy pressure following Friday’s big USDA WASDE crop report that was full of surprises.
Shots rang out at the Butler Farm Show turned political rally as former President Donald Trump rallied those in attendance to put their support behind his presidential campaign. A bullet grazed Trump’s ear, while killing a woman in attendance, while another attendee was also wounded. It was another dark day in politics. President Trump was immediately swarmed by his protection detail, but he rose again in defiance of the shooter before being escorted to the safety of his motorcade. He later posted a message on social media stating that he would not allow a shooter to alter his schedule as he heads to Milwaukee, Wisconsin for this week’s Republican National Convention, where he is expected to accept the party’s nomination for president of the United States. It’s politics in a free nation where freedom of speech sometimes brings out the worst of us, but where freedom also brings out the best of us. Wall Street pushed higher this morning amid expectations that the process will continue to move forward as it was in the days prior to the assassination attempt. The system, with all of its faults, still works, and leaders emerge.
Yields on 10-year Treasuries are pushing higher this morning on expectations that Trump will win the November election, bringing a business growth economic plan with him. Yields on 2-year Treasuries set fresh four-month lows overnight on expectations that the Fed will be cutting interest rates near-term. But yields on the longer end of the yield curve also reflect rapidly rising fiscal deficits that continue to stress our government’s budget. The yield inversion continues to narrow on expectations of economic growth, along with rising longer-term fiscal risks.
Friday’s USDA WASDE crop report was full of surprises, especially on the domestic corn balance sheet. USDA’s June 28 acreage report showed larger planted acreage than expected for corn, while the quarterly stocks report on that same day showed larger supplies than expected. Larger-than-expected corn stocks suggest that either the previous year’s crop size was under-stated, or feed usage over-stated. The feed usage appears to be there. Big corn supplies are generally not being found where the cattle feeding is taking place. Feeding margins have favored keeping animals on feed a bit longer to heavier weights. But how do you make the balance sheets balance without increasing the size of the crop, which USDA doesn’t do until September? You do so by cutting feed usage, and then adding it back when you upwardly revise the crop size at the end of September. Instead, USDA increased feed usage, stating they did so because of the June 28 stocks report. Perhaps that means that they need to raise the size of last year’s crop by even more than previously believed. Furthermore, adjusting the feed usage of the current year in July has implications for the next marketing year as well, so USDA also raised next year’s feed usage, while also raising exports. In the end, they more than offset the increased production from the higher acreage to come in with new crop ending stocks just below 2.1 billion bushels, which appeared to be the objective for now.
But what happens if this year’s crop comes in above USDA’s 181 bushel per acre trend yield? That’s still quite possible, based on the weekly crop ratings, which will be updated later today. My seasonally adjusted yield model still had the national average corn yield above trend last week, and a flat condition score with no change this week would add a half-bushel to that, since condition scores typically decline this time of year. Satellite data shows a lot of problems developing with the crop in Minnesota, northwestern Iowa, and southeastern South Dakota, where heavy rains created significant flooding and ponding problems last month. However, conditions in the rest of the Midwest are thus far compensating for the problems in the northwestern Midwest amid expectations that we’ll see that trend continue with this afternoon’s ratings as well. Temperatures remain quite seasonal across the bulk of the Midwest over the next two weeks as the bulk of the crop goes through pollination. A few pockets of rainfall deficits remain, which will need to be monitored, but the bulk of the crop looks good. The area of primary concern currently is in the Black Sea, where heat and drought continue to stress the crop as it enters pollination. That’s something that could support U.S. exports six months from now, but the markets are currently focused on the Midwest.
