May 29- Reinflation is again on the table on Wall Street, pressuring stock futures in overnight trade as both Treasury yields and crude oil prices rise to four-week highs, with wheat prices trading near one-year highs. The VIX popped to its highest level since May 3rd overnight to trade above 14, although that is still a historically low level. The dollar index is modestly higher near 104.8 as Treasury yields rise. Yields on 10-year Treasuries are trading near 4.58%, as they break above the logjam near 4.5%, while yields on 2-year Treasuries are trading near 4.96% as they continue to consolidate just below the pivotal 5% level. Crude oil prices jumped to fresh four-week highs above $80 per barrel overnight as geopolitical risks rise in the Middle East, while the grain and oilseed markets traded mostly weaker overnight, as traders react to Monday afternoon’s USDA crop progress report.
Eurozone bond yields hit a fresh one-month high today after data showed rising inflation pressures in three German states. U.S. Treasury yields rose to fresh four-week highs as well amid growing fears that we may see the Federal Reserve keep rates “higher for longer.” But how much control does the Fed really have over mid- and longer-term rates in an economy that continues to benefit from fiscal stimulus? That stimulus, combined with student loan forgiveness, continues to push our monetary base upward at a time when the Federal Reserve is trying to withdraw monetary stimulus from the economy by shrinking its balance sheet. But even there, the Fed found that it needed to slow the pace of shrinking its balance sheet to ease the upward pressure on mid- and longer-term rates. The bottom line is that fiscal stimulus, and the borrowing necessary to support that, continues to dump high quantities of debt certificates onto the market, and Wall Street investors are increasingly concerned about whether the market can absorb the increased supply of debt certificates this year without rates rising. We had a weak 10-year auction yesterday, providing the backdrop for today’s rise to four-week highs in yields.
China may import Argentine corn as early as July of this year, after taking steps to approve genetically modified hybrids available in Argentina. Argentine exporters are prepared to start those shipments by July, but there’s still waiting for official approval from Chinese authorities for imports. It’s been widely expected that China would open the door to Argentine corn imports after it did so with Brazilian corn in 2023. That quickly allowed Brazil to push the United States out of the position of being China’s top supplier of corn, with U.S. corn accounting for just 10% of Chinese imports this year. China is actively diversifying its corn and soybean sources away from the United States as geopolitical tensions between the two powers continue to escalate.
USDA reports that this year’s corn and soybean crops are going in the ground with plenty of moisture to support big crops. That doesn’t tell all of the story, with excessive moisture risking emergence and establishment from northwest Iowa to portions of Illinois. But we’ll get a better assessment on the impact of excessive wetness when we see the first crop condition ratings for corn, which should come out on Monday. That should put the ponding issues into perspective for this year’s crop. USDA reports that 83% of the U.S. corn crop was planted as of Sunday, which is one point ahead of the five-year average, albeit the average is dragged down by a sluggish planting pace in 2019. Soybean planting progress at 68% is 5 points ahead of the five-year average. Add in the fact that Midwest winter wheat development is well ahead of its normal pace at this time of year, which suggests that we could see a rise in double crop soybean planting behind the wheat harvest. We could see corn acres rise by close to a million acres, with soybean acres also possibly rising if we maintain the current path. The focus will quickly shift then to yield potential, and the early crop conditions will play into that discussion, as impacted by the excessively wet conditions. Acreage should not be a problem this year, so we’ll need to see a threat to the crop itself to create supply concerns.
India may import up to 3 to 5 million metric tons of wheat this year, according to a report from Reuters. That would be big news in a year when Russia appears to be producing a smaller crop. Reuters reports that India may lift its 40% import tax after June of this year, possibly putting it back on by October when the 2025 crop is planted. Structurally, India is struggling to sustain production at levels that keep up with the growth in demand, so we anticipate that it will eventually reach that point of needing to import wheat. Will that be this year? Possibly so, but not necessarily. India currently has ample supplies of rice, and history tells us that the two are somewhat interchangeable as food grains. Typically, India does not import wheat when it has ample supplies of rice. If it does import, those imports would likely be sourced from Russia, which may also find itself in a position of needing to restrict exports due to this year’s short crop, leading other customers to seek alternative supplies from other exporters, where supplies are also relatively snug. A lot hinges on what the actual size of Russia’s crop turns out to be over the coming weeks.
