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Perspective: Morning Commentary for October 16

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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October 16 – Stock futures are pointing to a mixed open, keeping theme with the choppy week of trade seen thus far as the broader equity sector pushes mostly higher but with a notable shuffling of money flow out of tech and into other areas. The VIX is off notably to start the day, hovering back around 16 after pushing to a fresh one-month high above 18 yesterday. The dollar is adding to yesterday’s losses, down 0.2% at the time of writing to trade near 101.8 after touching a two-week low overnight. Treasury yields are modestly higher this morning, with 2-year yields near 4.76%, 10-year yields at 5.11%, and 30-year yields just above 5.44%. Crude oil is looking to end a strong week on a weak note, with nearby WTI off 1.6% to hang near $96 after posting a fresh four-week high yesterday, while nearby Brent is near unchanged around $105.9 at the time of writing. The ags are off to a mostly lower start, though it will be interesting to see if this morning’s export data that we’ll touch on below brings any strength on the open.

This morning’s holiday-delayed USDA export sales report showed a rebound in corn sales to 44.2 million bushels in the week ended October 8, a five-week high, with Mexico the featured destination. That was effectively right in line with the previous five-year average for weekly corn sales, but again weaker than last year, with cumulative 2026/27 corn sales of 814 million bushels now 32.7% behind last year’s pace. After USDA added another 25 million bushels to their expected 2026/27 corn export demand on last week’s October WASDE, the market needs to see a meaningful uptick in realized sales to play catch-up with the pace needed or risk seeing that figure walked back downward. It’s worth noting that today’s report is the first full week of U.S. export sales data following the September 30 quarterly stocks surprise that drove corn prices notably lower. There’s plenty of intrigue on next week’s report as well, as that will give us the first look at U.S. corn sales following USDA’s second bearish surprise on the October WASDE. My own expectation is to see a notable rebound as buyers that had previously been sitting on the sidelines watching prices move higher start to step forward to take advantage of the break in prices. This morning’s daily flash sale announcement of 127k metric tons (5.0 million bushels) of corn to Japan may be evidence of this.

Elsewhere, weekly soybean and wheat sales both came in near the low-end of expectations at 21.1 million bushels and 11.8 million bushels, respectively. On the soybean side, China was yet again the featured buyer, as they have been all year, with a surge of flash sales announced this week, including today. USDA this morning reported total daily flash soybean sales of 794k metric tons (29.2 million bushels), with 558k metric tons (20.5 million bushels) to China and the remaining 236k metric tons (8.7 million bushels) to unknown destinations, potentially also China. This brings the total over the last three days to an impressive 1.877 million metric tons (69.0 million bushels), helping offset some of the disappointment following yesterday’s unexpectedly weak September NOPA soy crush. On the wheat side, U.S. exports remain off to a slow start in the 2026/27 marketing year, with the cumulative total now sitting at 383 million bushels, down 32.6% from last year’s strong pace and maintaining the weakest pace in three years. Disruptions to Black Sea shipping and potential quality problems in both Canada and Argentina do keep the door open for additional U.S. export demand in the months ahead, but USDA’s 25 million bushel cut in their export target on last week’s WASDE reflects the market’s growing impatience over seeing more of this demand come to fruition.

Fed Chair Kevin Warsh’s address from the IMF meeting in Bangkok helped calm markets overnight as he expressed optimism regarding the resilience of not just the U.S. but global economy in the wake of ongoing shocks in the energy sector and beyond, while also referring to inflation as a “common challenge,” pointing to the synchronous tightening in monetary policy around the world to address such pressures. Given this week’s hot inflation data at both the producer and consumer level, market expectations had shifted notably hawkish, but have cooled notably to end the week, with Warsh’s comments and those from other FOMC members easing fears of an October hike, with CME’s FedWatch showing the odds of such a hike back down to ~15%, maintaining a base case of one more 25-basis point hike by year’s end, coming at the December meeting. We’ve also seen tech stocks shaken this week by renewed jitters regarding the sector’s massive debt load, but Warsh’s confirmation of the Fed’s new task force on the impact of AI on productivity and jobs set to hold a “field hearing” in the Bay area one month from today helped bring some sense of calm as well. While he covered the topic of AI extensively, he also pointed to strength in U.S. investment beyond AI providing further resilience to U.S. economic growth, noting: “it means we’ve got plenty of tailwinds that are giving some strength and durability to this economy,” highlighting that such tailwinds are not present everywhere globally.

Total assets in the Fed's balance sheet (less eliminations from consolidation) rose 0.12% week-on-week to $6.756T, their largest weekly increase in nine weeks and the highest level over that span. For a period still characterized as quantitative tightening, it is notable that the Fed’s balance sheet has not been shrinking meaningfully in recent months and is now up 3.36% from the recent low of $6.536T posted in December 2025, though still 24.7% below the pandemic-era peak of $8.965T reached in April 2022. The most notable development continues to be the growing concentration in Treasury bills, which increased another $3.9B on the week to a fresh all-time high of $566.0B. Treasury bill holdings are now up $370.6B from a year ago, accounting for nearly all of the $374.3B annual increase in the Fed's Treasury portfolio. Meanwhile, mortgage-backed securities (MBS) holdings have declined $187.8B over the same period, reinforcing the view that the Fed is steadily reshaping the composition of its portfolio away from MBS and toward Treasuries. While hardly indicative of renewed balance-sheet expansion, the trend does suggest that quantitative tightening in 2026 looks considerably different than it did two years ago. The Fed's portfolio continues to migrate toward shorter-duration Treasury holdings even as overall asset levels have largely stabilized, a backdrop that points to abundant system liquidity and a balance sheet much closer to its eventual steady-state composition than many may appreciate.

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Perspective: Morning Commentary for October 16

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