Perspective: Morning Commentary for July 23

July 23 – Stock futures were quietly mixed overnight, as traders continue to assess the changing political outlook, while also waiting for key economic data later this week. The VIX is trading near 15 this morning, while the dollar index is trading near 104.5. Yields on 10-year Treasuries are trading near 4.23%, while yields on 2-year Treasuries are trading near 4.50%. Crude oil prices are trading at fresh five-week lows below $78 per barrel as the lead September contract takes over, while the grain and oilseed markets were mixed overnight.

Vice-President Kamala Harris continues to garner the support of an increasing number of delegates who will be voting at the Democratic National Convention in late August. She’s reportedly raised close to $100 million for her campaign since President Biden stepped down over the weekend, and an increasing number of leaders in the Democratic Party have thrown their support behind her. What was expected to be a drawn-out fight into the party convention next month now appears to be a smoother transition, although former President Barack Obama has not yet provided his endorsement of the current vice-president. Nonetheless, the political circus has kept the media attention on the Democrats and on Harris, removing some of the momentum that former President Donald Trump enjoyed coming out of last week’s Republican convention. As such, I expect to see the polls continue to tighten in the near-term, leaving some uncertainty again for the markets as to future direction of policy that might impact things like trade and support for liquid biofuels, or the lack thereof.

China’s stock market remained under pressure today, despite yesterday’s unexpected move to cut interest rates by the People’s Bank of China. Traders fear that China’s economy will continue to struggle as Europe and the United States shift away from China as a source for goods and services, with other countries now beginning to do the same. They fear that a possible Trump presidency could further escalate economic problems in China with increased tariffs beyond what the Biden Administration has already implemented. A recent industry survey conducted by Invesco of chief investment officers and other key executives of sovereign wealth funds and central banks indicated that they see rising geopolitical risks as a major risk to global wealth. That has led many of them to increase investment in emerging markets and in gold. In fact, more than half of the survey respondents said that they either intended to increase gold reserves in the next two years, or that they considered gold a more attractive hedging tool. On the top of their list of concerns was the current tensions between China and the United States, which biased them toward investments in markets such as Brazil and India.

Brazil soybean basis at the ports is rising as farmers hold tight to the remaining quarter or so of last year’s crop, and while exporters focus on moving the winter (safrinha) corn crop currently being harvested. That does two things. First, it makes U.S. soybeans competitive into China again for shipments to arrive in China in September. It takes roughly 45 days for shipments to travel from Brazil to China. Second, it means that Brazilian farmers still have soybeans that they’ll need to move ahead of harvesting the next crop, which means that we may see Brazilian soybeans undercut U.S. soybeans into China again later this year, as happened last year. U.S. soybean shipments into China are already down 25% in the current market year that ends on August 31^st versus the previous year’s pace, and the United States is expected to continue to lose market share to cheaper Brazilian supplies.

USDA reported that 67% of the U.S. corn crop rated Good to Excellent as of Sunday, down 1 point from the previous week, but still 10 points above year ago levels during the same week, and 5 points above the five-year average for the week. Ratings increased in eight of the 18 states surveyed, while declining in eight and remaining unchanged in two states. This week’s crop rates higher than it did a year ago in 12 states, while lower than at this time last year in six. This week’s crop rates higher than the five-year average for the week in 11 states, and lower in six states. The soybean crop rated 68% Good to Excellent this week, unchanged from the previous week, while 14 points above year ago levels and 9 points above the five-year average for the week. Nine states saw improvement this week, while seven states saw losses. Thirteen states have a higher condition score than at this same point last year, while five have a lower score. Twelve states have higher ratings than the five-year average for the week, while five states have lower scores. My seasonally adjusted corn yield model is at 182.4 bushels per acre, while my soybean yield model is at 53.4 bushels per acre. Our official StoneX yield estimates for the August crop report will be the product of our customer survey on August 1^st. Today’s forecast supports the emerging theme that developed over the weekend of a bias toward above normal temperatures and below normal precipitation, especially in northern and western portions of the belt. As such, I suspect that we’ll see the yield models creep lower if this forecast verifies in the weeks ahead, with an increasing focus on soybeans as we move into August.