Perspective: Morning Commentary for February 18

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

February 18 – The markets reopen today following a three-day holiday in America, with stock futures reflecting cautious optimism to start the shortened trade week. U.S.-Russian peace talks raise hopes for a ceasefire in Ukraine, while traders also continue to monitor headlines flowing out of the White House regarding tariffs and government layoffs. The VIX is trading near 16 at this hour, while the dollar index is trading 107.0. Yields on 10-year Treasuries are trading near 4.52%, while yields on 2-year Treasuries are trading near 4.28%. Crude oil prices are modestly higher as prices consolidate just above $70 per barrel, while the grain and oilseed markets are mixed.

The Empire State manufacturing index came in at +5.7 for February, up from -12.6 in January, and above analyst expectations of -0.5. A number above zero indicates month-on-month growth, versus a negative number that reflects contraction. Both new orders and shipments grew moderately this month, while delivery times lengthened a bit, and supply availability slipped. Inventories grew modestly, reflecting a sense of optimism that manufacturers expect to see an increase in demand. However, input prices grew at their fastest pace in nearly two years, while selling prices were also noticeably higher. Optimism about future conditions declined significantly, although firms were generally still optimistic about the next six-month outlook.

President Trump’s reciprocal tariff plan continues to garner attention in the commodity markets, as traders try to assess the impact on demand for U.S. products. I wrote about this last week, but more details were released over the weekend. While traders remain nervous, they found comfort in the fact that the tariffs are not immediate, and on Trump’s stated purpose of using the tariffs to bring other nation’s charging the States tariffs to the negotiating table to reduce those tariffs, which could in the end increase demand for U.S. commodities.

Tensions with China have ratcheted up once again. We initially saw a movement of President Trump and Chinese President Xi Jinping toward one another in January, as the two had conversations, and spoke well of working together. We even saw signs of a possible trade deal – perhaps a revival of the Phase One trade deal from Trump 1.0 that emphasized the purchase of U.S. agricultural commodities. There was chatter of Chinese buying of U.S. commodities in the cash market as a goodwill gesture toward the States. But all of that has cooled this month, with China pulling back from purchases of U.S. commodities in favor of cheaper supplies from alternative sources who have weaker currencies that are more economical as a result. Trump’s reciprocal tariff plan further added to those tensions, with China not happy about Trump matching the tariffs that it charges the States. There are fears that China may reciprocate, leading to an escalation of tariffs between the two nations, although that would also hurt China’s economy that is more dependent on exports than is the economy of the United States, which has a consumer driven economy. Additional tensions came from a recent change in a statement on Taiwan on the U.S. State Department website. The State Department removed verbiage indicating that “we do not support Taiwan independence,” although it maintained adherence to the “one China” policy. Beijing sees this as a move to either contain China, or to force China to negotiate more favorable terms with the United States. China also fears that Trump’s talks with Russian President Putin could result in more of an informal alliance between Russia and the United States that might isolate China.

The grain and oilseed markets encountered selling pressure when they reopened overnight following the three-day holiday weekend as traders worried about the impact of President Trump’s reciprocal tariff plan. However, those fears eased as the trading session progressed through the night, with corn and soybean prices moving into positive territory once again by the time that U.S. desks opened again this morning, with wheat prices posting modest losses. Corn prices continue to lead, as they sit on the cusp of new highs for the move this morning on strong demand that has not slowed following this winter’s rally. Global wheat stocks as a percent of use are tighter, but U.S. supplies are larger relative to demand than corn supplies are, making sustaining a rally in wheat more difficult for the time being. The primary question at hand is, how will U.S. and Russian winter wheat emerge this spring from the challenges of the winter? Export demand for U.S. wheat is improving as global alternatives start to dry up, although we’re no where close to running out of wheat in the States. That would likely take concerns about the 2025 crop as we move through the next few months in the Northern Hemisphere growing season. Meanwhile, harvest continues to pick up momentum in Brazil’s soybean belt, where yields continue to impress. Areas under moisture stress in Argentina have been reduced to roughly 10% of its grain belt, thanks to timely rains, although overall rainfall continues to trend below normal. All of this continues to be traded within a context of fund managers wanting to have ownership of commodities to various extents as their fears of higher inflation rise.

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Perspective: Morning Commentary for February 18

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