May 22 – The president’s budget bill passed the House by one vote overnight, but now the focus shifts to the Senate, which has a much different perspective on to how to best move forward. Nonetheless, the measure has passed another significant hurdle toward final passage. Stock futures continued to reflect Wednesday’s weaker tone overnight, pushing the VIX upward to trade near 22 this morning, while the dollar index traded near 99.8. Yields on 10-year Treasuries traded near 4.59%, after hitting a fresh three-month high, while yields on 2-year Treasuries traded near 3.98%. Crude oil prices are more than 1% weaker this morning, as economic concerns rise once again, while the grain and oilseed complex was mixed to mostly weaker overnight.
It was the narrowest of possible margins that saw the president’s budget bill pass the House of Representatives last night – a single vote. There are many more hurdles to overcome, but it passed one more significant hurdle. The Senate has a much different view of things than does the House of Representatives, so the drama will likely continue in Washington. Your view of the bill likely hinges on your political leaning. Those who lean to the right see the opportunity to sustain the tax cuts of Trump 1.0 to the benefit of the economy, while they’re disappointed in the inability to do more to finally balance the budget. In the end, this bill does little to cut spending at the bottom line, although to a great extent it stops the “automatic” big annual spending increases. Those who lean to the left see a massive build in the deficit due to the extension of the tax cuts, with a few additions, although they don’t mention the massive tax increase that happens if the bill does not pass.
I’ve been warning of the consequences of deficit spending for years, but it always amazes me how the party that’s not in power complains about it – until they’re in power. The strength of democracy is that the people get what they want. The weakness of a democracy is that the people get what they want. The people want what they want when they want it, without concern about paying the bill. They have little interest in fixing the problem until the pain exceeds the benefits of getting what they want. That’s what happened in Argentina. The pain of 200% inflation finally exceeded the benefits of getting what they wanted from the government. I don’t believe that Americans have felt enough pain yet to support their elected officials doing what needs to be done to get their house in order.
The House version of the tax bill has some significant implications for the commodity sector, if they carry on through negotiations with the Senate. That’s not a given. The bill as it was passed by the House of Representatives contains an extension of the Section 45Z Clean Fuel Production Credit through 2031, but only feedstocks from Canada, Mexico, and the United States can qualify for the credits. The most significant part of the bill is an exclusion of the Indirect Land Use Credit penalty from the carbon intensity score calculation starting in 2026. The ILUC clause penalized ethanol produced with corn, for example, because it “assumed” that allowing U.S. corn to be a feedstock for ethanol would necessitate the destruction of the rainforest in Brazil. That’s a very difficult assertion to prove, but it has been in the government’s calculations to this point. Passage of this wording would help qualify ethanol as a feedstock for the production of sustainable aviation fuel, while helping other feedstocks as well. The current bill also prohibits Foreign Entities of Concern from accessing 45Z credits. Now the focus shifts back to today’s first meeting of the White House’s Office of Management of Budget to discuss the RVO requirements for biofuels amid hopes that we will soon get clarity on the biomass diesel production mandates and small refinery exemptions.
First-time claims for unemployment benefits slipped to 227K in the week ending May 17, down from 229K the previous week, and below analyst estimates of 230K. The four-week moving average ticked higher to 231.5K claims this week, up from 230.5K the previous week. Continuous claims for the week ending May 10 rose 36K to 1.903 million. This pushed the four-week moving average to 1.888 million, up 17.5K from the previous week. That’s a new high for the four-week moving average since November 27, 2021. Initial claims for unemployment benefits filed by former Federal civilian employees totaled 595 in the week ending May 10, up 157 from the previous week. Continuous claims by former Federal civilian employees in the week ending May 3 dropped to 6,386, down 185 on the week. Weekly overall claims remain low, but continuing claims are slowly climbing.
Energy prices were under pressure again this morning amid demand concerns and rising inventories. Prices continue to linger around cost of production values in the shale oil fields. The grain and oilseed markets saw several days of good gains, but now we’re seeing some sellers challenging that strength. A three-day weekend approaches, with the markets closed on Monday for the Memorial Day holiday. The headlines will no doubt continue to flow. June will soon be upon us, when corn and soybean traders will increasingly focus on Midwest weather forecasts.
