9.20.24 Tredas Weekly Recap

Weekly Action:

Corn Dec24 down 11.5 at $4.015

Beans Nov24 up 6 at $10.12

KC Wheat Dec24 down 36 $5.64

Hogs Oct24 up 3.85 at $82.225

Fats Oct24 up 4.90 at $182.475

Feeders Oct24 up 4.675 at $243.900

Corn Dec25 down 6 at $4.4225

Beans Nov25 up 3.5 at $10.615

KC Wheat July25 down 31 at $5.9225

Market Recap:

With harvest reaching the central and upper Midwest this week we saw some hedge pressure in corn as there were earlier gains close to technical resistance points concluding in a lower market with a late week sell off.  Good but varying yield reports are coming in across Nebraska and Iowa following good yields in Missouri.  We did see solid weekly ethanol output last week; up 1% from last year.  Stocks at 23.8 mil barrels slightly higher from last week.

Wheat had the toughest week; down over 30 cents, mainly on Russian wheat pricing and rains in the southern plains forecasted for the weekend and next week.  We did see the EU grain lobby Coceral lower SRW production to 126 mil tonnes; well below last years totals.

Beans were the bright spot on the week; coming off reports of strong export sales last week along with the same news on wheat and corn of Coceral lowering European oilseed crop forecasts.  Price levels have been in a tight pattern as we await further reports of yields and how late season dryness in the Eastern corn belt will affect crop sizes.  Some are also looking at potential Chinese sanctions next week when recent tariffs were announced by the Biden administration on Chinese imports of various goods similar to Canadian sanctions earlier in September.  See Soybean Exports below:

Weather:

Central US and Eastern Cornbelt regions forecasted for 1-3” of rain over the weekend.  Great for the Mississippi River region.  Also some precipitation for the TX panhandle.  This will be welcome for river levels and dry regions.  Few delays in harvest to be expected overall with some regional exceptions.

South American weather was a potential positive market factor with dryness persisting in September.  However, forecasts for October have moisture moving in the first week or two and potentially easing concerns in central Brazil.

Economy:

The big financial news of the week was the FED’s decision to cut rates 0.50% on Wednesday. Most experts expected just a 0.25% cut.

From RJO’s Tom Pawlicki:

A week ago, Fed Funds futures appeared to be firmly predicting a 25 bps rate cut, as the recent employment report and CPI data showed that the economy was slowing but was generally still strong. The odds of a 50 bps cut were only 57% at that time, but by Friday, they had jumped to a 75% chance based on FT and WSJ reports suggesting that 50 bps was possible. Fed Funds at 5.375% were considerably above CPI at 2.5%, and implied that policy was restrictive. However, some Fed members had still spoke hawkishly in recent comments. Markets were fearful that a 50 bps cut would signal that the Fed is panicked and worried about bigger problems developing.

50 bps is not typical for first move
There is no tendency for the Fed to cut rates by 50 basis points in its first move and essentially front-load the easing. In the six prior rate-cutting cycles since 1990, the first cut of the cycle has been 50 bps cut in only two of them. The other two were made near crisis situations, with the first in January 2001 at the start of the bursting internet bubble. The second was in September 2007 at the beginning of the housing crisis.

There is no crisis in place now, and Fed Chairman Powell didn’t seem worried about either a crisis or a recession developing.  He said that he sees the risks to the Fed’s employment and inflation goals as roughly in balance. He didn’t say that the Fed regretted not cutting at the last meeting in July but said that the two employment and inflation reports received since then were softer. He added that the QCEW revisions were a factor too. He said that the economy is in a good place and that the Fed’s intention is to keep it there.

Markets are now pricing in 75 bps in cuts at the remaining two meetings this year, according to the CME’s Fedwatch tool. Fed Funds futures see a 100% chance of a 50 bps cut at the November 7th Fed meeting and a 100% chance of a 25 bps cut at the December 18th meeting.

Updated Summary of Economic Projections
The FOMC’s Summary of Economic Projections reduced the 2024 PCE inflation expectation to 2.3% from 2.6% in the June SEP and cut the 2025 projection to 2.1% from 2.3% previously. The year-end 2024 Fed Funds rate was reduced to 4.4% from 5.1%, which suggests that there could be two more 25 bps rate cuts this year. The 2025 projection in Fed Funds was reduced to 3.4% from 4.1%, and suggests that there could be another 100 bps in rate cuts next year. In other projections, the 2024 GDP number was reduced to 2.0% from 2.1% in the June SEP, but the FOMC left the 2025 expectation unchanged at 2.0%. The unemployment rate for 2024 was raised to 4.4% from 4.0% in the June SEP, and raised the outlook for 2025 to 4.4% from 4.2%.

How this will play out is unknown, but below is the historical performance of the S&P 500 and Gold following the first rate cut after previously raising rates:

Quote of the Week:

“I can’t buy the happiness I see on people’s faces when I give them a fifty dollar bill.”

-Keith Jackson, tv broadcaster

Something that probably means nothing: