Thoughts to begin the week...
One more time?
The U.S. economy continues to show positive and expanding payrolls as we head into the July 24-25 FOMC meeting. Markets now expect that the Fed will raise rates at least “one more time” following this meeting by 25 basis points. Our focus this week is on two inflation readings for the month of June, the Consumer Price Index on July 12 and the Producer Price Index (PPI) on July 13. It is important to note that the year ago inflationary figures were exceptionally high due to record energy prices, hence the year/year comparisons have the potential to look a bit more encouraging than the underlying data would otherwise suggest.
In the agriculture, energy and fertilizer spaces, our focus this week are the July WASDE report (we believe corn and soybean yield projections are too optimistic), the Vancouver port strike situation (impacting potash), new legislation designating phosphate and potash as “critical minerals,” and weekly ethanol production. Overseas, Friday’s surprise (at least to us) resignation of Holland’s Prime Minister, Mark Rutte, is likely a win for Dutch farmers given Rutte’s efforts to reduce fertilizer usage in this key agriculture production / export region.
Note that 2Q 2023 earnings season kicks begins this week. Interestingly, equity markets appear to have already discounted the 6.8% expected drop in public company earnings. Clearly, “earning season” will test the 14.57% rally in the S&P 500.
The Watch List: What We Are Monitoring This Week
- WASDE Report This week’s WASDE report will reflect the new June 30th June acreage numbers which surprised the market – corn to the high side (bearish price action), soybeans to the low side (bullish price action). Key issue now: will USDA cut its corn and soybean yields in this month’s report?
- U.S. Crop Progress Beneficial rains were better than expected this past weekend, however, more is needed given current low crop ratings. According to Pro Farmer, “multiple waves of rain are expected to move across the central U.S. this week, favoring central and southern areas of the Corn Belt.” However, Oklahoma and Kansas could get rain that would hurt HRW crop quality and harvest activity.
- Critical Minerals Bipartisan legislation has been introduced in Congress to designate phosphate and potash as critical minerals.
- Drought / Mississippi River Water levels are falling on the Mississippi River and are now apparently lower in St. Louis and Memphis to the low-water year of 2022 (Mike Steenhoek of Soy Transportation Coalition and Agri-Pulse)
- Cell-Cultured Meat In June, USDA’s Food Safety and Inspection Service has gave final approval to two California-based cultivated meat companies to produce cell cultured chicken: Upside Foods and Good Meat.
Catalysts: Economic, Company and USDA Reports, Meetings, Other Events
| July 10 | Consumer Inflation Expectations, Consumer Credit, Crop Progress, Used Car Prices |
| July 11 | National Federation of Independent Businesses (NFIB) release of the Small Business Optimism Index, Amazon’s annual Prime Day event. |
| July 12 | Consumer Price Index (CPI), EIA Ethanol Production, World Agricultural Production (WASDE), Fed Kashkari Speech, Mortgage Applications, Federal Reserve Beige Book report, NATO Summit (Lithuania) |
| July 13 | Initial Jobless Claims, Producer Price Index (PPI), Fed Waller Speech; OPEC monthly Oil Markets Report. |
| July 14 | Initial Jobless Claims, University of Michigan (GO BLUE!) Consumer Sentiment, Inflation and Current Conditions. JPMorgan Chase, Citigroup and Wells Fargo report 2Q 2023 earnings. |
| July 17 | The next expiration date for the Black Seas Grain Initiative |
Numbers of Interest
3.0% and 5.0% Inflation expectations for this week’s June Consumer Price Index report. Consensus calls for headline inflation to fall to 3.0% from 4.0%, and “core” inflation to fall to 5.0% from 5.3% (both relative to May 2023.)
92% Odds that the Federal Reserve will raise interest rates by 25 basis points (bps) at its July 2023 FOMC meeting.
-6.8% Consensus expectations look for a -6.8% drop in 2Q 2023 corporate earnings for S&P 500 earnings, the largest decline since 2Q 2020 (COVID) when earnings fell by -31.6% (source: Dow Jones News and Barron’s.)
13% Percentage increase in U.S. new vehicle sales during 1H 2023.
4.88% Two-year Treasury yield at 6/30/23, up from 4.06% on 3/31/23.
17.5% One-year change in average unit prices for jellies and jams at the supermarket (as of June 30th), as consumer packaged goods companies continue to attempt to drive higher margins.
20 million Amount of acres that have now burned in Canada during recent wildfires.
Kenneth Scott Zuckerberg is Lead Industry Analyst, Farm Supply & Biofuels, CoBank.
