Now that a shutdown of the federal government appears to be avoided for at least 45 days, is it time to worry about student loan debt? We would focus more on credit card debt.
A reported 44 million Americans will begin repaying their student loans this month after a three-and –a-half year hiatus. While student debt represents a meaningful 9% of total household debt, we are more concerned about the current level of total credit card debt, which hit a record high of $1.03 trillion as of June 30, 2023.
The bad news: this debt is short-term and at very high rates. According to data from LendingTree.com and the Federal Reserve, the average annual percentage rate (APR) for credit cards accruing interest was a shocking 22.16%. Putting this into perspective, 9% of household debt is 418% higher than the current Federal Funds target rate of 5.25% to 5.50% and 286% more expensive that the current average U.S. mortgage rate of 7.5% to 8.0%.
The good news is that only 2.77% of Americans’ total outstanding credit card balances are now at least 30 days delinquent based on data from the Federal Reserve and LendingTree.com.
Additional items on this week’s Watch List (see next slide) include: Mississippi River situation, potential new phosphate duties on Russia, China & Taiwan, Germany’s economic picture, and bank-owed commercial real estate.
The Watch List
- Government Shutdown (Short-term) Congress averted a government shutdown on Saturday by approving a stopgap spending bill to keep agencies funded through Nov. 17th Congress will have to come up with FY2024 spending before then.
- Mississippi River (Short-term) Continued low water levels are driving up the price of grain transportation costs.
- Consumer Debt (Medium-term) U.S. credit card debt hit a record $1.03 trillion (although 30 day delinquencies are still low at 2.77%); about 44 million Americans will begin repaying student loans this month.
- Potential New Phosphate Duties (Medium-term) The U.S. Department of Commerce could finalize a new 53% countervailing duty on phosphate fertilizers from Russia by October 31st (see accompanying slide)
- China / Taiwan (Long-term) Friday – a Chinese fishing boat was found operating illegally in Taiwanese waters, continuing tensions between the countries.
- Germany
- Recession (Medium-term) Germany’s economy remains under pressure led by the automotive sector. Could the country’s economic troubles (-0.4% GDP) pull down the rest of Europe in 2024?
- Commercial Real Estate (CRE) (Long-term) Bank-owned commercial real estate will continue to rise as commercial vacancies increase.
Upcoming events and catalysts
10/2/2023 USDA Grain Inspections, Grain & Oilseeds Crushing Reports, Crop Progress
10/3/2023 Commodity Costs and Returns, Job Openings
10/4/2023 ADP employment, Factory Orders
10/5/2023 Weekly Export Sales, Initial Jobless Claims, U.S. Trade Deficit
10/6/2023 Livestock and Meat International Trade Data, Employment and Wages, Consumer Credit
10/9/2023 None scheduled, Columbus Day holiday
10/10/2023 U.S. Agricultural Trade Data, Grain Inspections, Crop Progress
10/11/2023 Producer Price Index (PPI) and September FOMC Minutes
10/12/2023 Weekly Exports, WASDE, Crop Production, World Markets & Trade, Initial Jobless Claims, Consumer Price index (CPI)
10/13/2023 Weekly Export Sales, Season Average Price Forecasts, Consumer Sentiment
Numbers of Interest
14 The number of times there have been lapses in government funding over the past four decades.
-10.5 feet Memphis water levels on the Mississippi were recently quoted as -10.5 feet below base levels, close to last year’s record low of -10.8 feet
-15% Cargo volumes at the Port of Oakland fell 15% YoY in August as demand from retailers, manufacturers and other shippers slowed down.
+29.4% Increase in the CBOE Volatility Index during 3Q 2023
-6.9% Percentage decline for Germany’s DAX Index (equities) during 3Q 2023
410,000 Number of chickens culled by South Africa’s RCL Foods chickens amid bird flu outbreak.
Key ag observations
- Agri commodity performance was generally negative in Q3, with just 5 of 14 commodities we track gaining in price. Wheat was the major decliner (Hard Red -19%, Spring Wheat -17%), followed by Corn (-16%) and Soybeans (-14%).
- Interestingly, corn’s performance has diverged meaningfully from Crude Oil, which gained 30% during Q3 and more than recovered its earlier losses in the first-half of 2023. Crude has its own unique supply-demand dynamics going on and, given declining natural gas and fertilizer prices, we are NOT seeing an overall rebound in commodities.
- We are closely monitoring the phosphate complex as the U.S. Department of Commerce could finalize a new 53% countervailing duty (CVD) on phosphate fertilizers from Russia by October 31, 2023.
- Despite lower nutrient prices, the shares of several publicly traded grain and fertilizer companies came back to life during Q3 with median price gains of 6.9% and 4.7%, respectively considerably outperforming the broader market (S&P 500) decline of -2.5%. Unfortunately, the ag-chem and seed sector saw a pernicious drop of -35.9% and the farm equipment sector fell -8.5%.
Kenneth Scott Zuckerberg is Lead Industry Analyst, Grains, Farm Supply & Biofuels, CoBank.
