Perspective: Morning Commentary for February 28

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

February 28 – It’s the final trading day of the month, with some traders squaring their books to close out February. Stock futures rallied this morning following the release of PCE inflation data, but those gains are easing back again ahead of the open. The VIX is trading near 21 amid more tariff talk from the White House, while the dollar index is trading near 107.3. Yields on 10-year Treasuries are trading near 4.25%, after falling to fresh 11-week lows this morning, while yields on 2-year Treasuries are trading at four-month lows near 4.05%. Crude oil prices are down 1%, while the grain and oilseed markets are modestly higher across the board.

Personal income rose 0.9% on the month in January, exceeding analyst expectations of 0.3%, and up from 0.4% in December. Personal consumption expenditures contracted 0.2%, versus expectations of 0.2% growth, and versus 0.8% growth in December. The PCE price index rose 0.3% on the month in January, down from expectations of 0.4%, but matching the previous month. The PCE price index was up 2.5% year-on-year in January, matching expectations, but down from 2.6% in December. The core PCE price index that excludes the food and energy sectors rose 0.3% in January, matching expectations, but up from 0.2% in December. The core PCE price index rose 2.9% year-on-year in January, up from expectations of 2.6%, but matching an upwardly revised December.

China’s stock market tumbled today, in response to President Trump’s tariff announcement on Thursday. Trump indicated that he would add another 10% to tariffs already in place for all good imported from China, bringing the new tariffs to 20%. The latest round of tariffs are to take effect on Tuesday, March 4^th. The announcement included implementation of 25% tariffs on Canada and Mexico on the same day due to insufficient progress in doing what the three countries can do to shut off the flow of illegal drugs – most notably fentanyl and its components – into the United States. Thursday’s announcement comes following two years of deflationary pressures in China, and just ahead of next week’s key “Two Sessions” policy conference in China. Trump appears to be playing the role of the disruptor just ahead of those meetings.

In the end, Trump’s endgame is likely to contain China. Trump knows that Canada and Mexico are key trading partners, with whom we have a free trade agreement signed during Trump 1.0. But we’ve also seen a rapid increase in Chinese products flowing through these countries with enough “value added” to get them to qualify for tariff free entry. I sense that Trump’s primary goal is to shut off fentanyl, yes. But beyond that, he wants to put pressure on China by cutting off the flow of Chinese imports via Canada and Mexico to maximize pressure on China.

President Trump also proposed charging port taxes on Chinese vessels. Freightwaves.com reports that the fees would include up to $1 million per call for Chinese operated vessels, based on a rate of $1,000 per net ton of capacity; from $500,000 to $1.5 million per call depending on how many Chinese built vessels are in the operators fleet; from $500,000 to $1 million per call for operators with vessels on order at Chinese shipyards. Furthermore, the proposal would require that 1% of U.S. exports be on U.S. flagged and operated vessels, ratcheting up to 3% in two years, 5% in five years, and 15% in seven years. These new proposals are trying to reverse China’s efforts to dominate the global shipping industry. It’s still unclear whether the above port fees would apply to an empty vessel arriving to take on a cargo, or if they’re merely meant for ships arriving to unload. If the former is true, it could add roughly 50 cents per bushel to cost of grain being sold to China.

It’s time to start monitoring growing dryness in Brazil’s winter (safrinha) corn belt. Yes, this is the area primarily of Center-West Brazil that saw delayed planting due to excessive wetness a few weeks ago. A drier period was welcomed for rapidly harvesting soybeans so that the winter corn crop could be planted, but now we’re having trouble turning the rains back on. It’s not a desperate situation yet by any means, but the outlook is concerning. A big winter corn crop for maximum Brazil exportable supplies necessitates that the rainy season does not end until late April, or perhaps early May this year. Some models raise concerns that we may see an early end to the monsoons, leaving the crop at risk. That would have major implications for U.S. 2025-26 exports if the monsoons do end early. Meanwhile, previously dry areas of Argentina now see crop ratings improving as they can’t shut the rains off. Could the rains be excessive? In some cases, yes. But thus far the net result has been improved yield potential. Further north, we see an increased focus on dry subsoils across much of the Midwest Corn Belt, as well as the Southern Plains wheat belt. Forecast models suggest that the eastern Midwest should see notable improvement in moisture over the next couple of months, while the western belt and Southern Plains may continue to struggle. Those dryness concerns stretch north into the Canadian Prairies wheat belt as well.

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Perspective: Morning Commentary for February 28

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