Perspective: Morning Commentary for March 26

March 26 – Stock futures traded modestly higher overnight, fueled by strength among chip makers and megacap growth stocks, although this morning’s durable goods orders data briefly took a bit of the shine off those gains. The VIX is trading near 13 this morning, while the dollar index is trading near 104.1. Yields on 10-year Treasuries are trading near 4.26%, garnering modest support from the data release, while yields on 2-year Treasuries are trading near 4.61%. Crude oil prices are modestly higher on geopolitical risks, while the grain and oilseed markets were mostly weaker overnight as traders brace for USDA’s reports on Thursday.

Durable goods orders rose by 1.4% month-on-month in February, which was slightly better than the 1.3% gains expected by analysts, and much better than the 6.9% decline posted in January. Durable goods orders minus transportation rose 0.5% month-on-month, matching analyst expectations, and again, better than the 0.3% decline posted for January. Core capital goods orders rose by 0.7% month-on-month in February, exceeding analyst expectations of 0.1% growth, and an improvement from the 0.4% contraction seen in January. The latter is a better measure of business sentiment, suggesting an emergence of optimism during the month. Other data released this morning indicated that house prices rose 6.3% year-on-year in January, down from 6.6% in December, contributing to the shelter component of lingering inflation.

Entry into and out of the Port of Baltimore is blocked this morning after a container ship struck the Francis Scott Key bridge, causing a catastrophic collapse of the bridge. Sadly, seven people are still missing after cars on the bridge plunged into the waters below. The Port of Baltimore is one of the major ports on the East Coast, specializing in the movement of rolling cargoes such as cars, light trucks, earth-moving equipment and large farm machinery. In fact, the port handled the import / export of 750,000 vehicles in 2023, including vehicles from Nissan, Toyota, General Motors, Volvo Car, Jaguar Land Rover, Volkswagen, Audi, Lamborghini, and Bentley. However, it also ranks second in the country for the export of coal, sixth for importing coffee, and it is also a major receiving hub for sugar and gypsum. It is yet unknown when the port will be able to reopen to freight traffic, while some 40 ships remained trapped inside the port, including small cargo ships, tugboats, and pleasure craft. At least 30 other ships are said to be on their way to the port currently. The Port of Baltimore is the largest port by volume for farm and construction machinery and 3 million metric tonnes of agricultural products in 2023. The latter included 1.2 million tonnes of sugar and salt, along with gypsum, fertilizer and forest products. This port will reopen. We just do not yet know how long that will take, creating disruptions in the meantime.

Chinese policymakers are considering removal of home buying restrictions in the last four first-tier cities to stimulate the property sector, according to rumors inside China. The unconfirmed rumor provided optimism that struggling Chinese property companies could soon see relief, although we’ve seen these hopes dashed following similar rumors of relief. However, Chinese media reports indicate that regulators are pushing banks to speed approvals of new loans for private developers to stimulate the sector. Ultimately, a recovery in consumer confidence is needed to rejuvenate the Chinese economy, and policymakers have yet to accomplish that task. Consumer spending on goods and services that provide near-term enjoyment has been good, such as vacations, movies, concerts, etc., but spending on big ticket items that represent a longer-term financial commitment remains weak.

Good rains continue to fall across Brazil’s winter (safrinha) corn belt in the near-term, although significant longer-term deficits continue. Keep in mind that the porous soils in Center-West Brazil require heavier rainfall totals to sustain crops, as the soils are acclimated to tropical weather patterns. Normal weighted rainfall across belt for the past 30 days would be near 8”, while actual rainfall has been closer to 5”, with above normal temperature readings. Much of this rain came in the past 5 – 7 days, whereas things start to dry out again as we move into the month of April, when the bulk of the crop is expected to move into the pollination and early grain fill stages of development. Forecast confidence beyond 10 days is weak, so it would be risky to take a hard stand on what is going to happen, although the risks of a drier April are higher than a wetter one at this point. Normal April rainfall in Mato Grosso drops 8.5” in March down to 3” in April, so below-normal rainfall would quickly see stress return. As such, the next few weeks should go a long ways toward telling us whether global corn supplies will be more than ample in the next six months, or whether they’re going to be short.