Perspective: Morning Commentary for May 6

May 6 – I count no less than nine public appearances by members of the Federal Open Market Committee this week to provide Wall Street traders fodder for speculating about how the Federal Reserve might shape its monetary policy at future meetings, in the absence of other economic reports in the days ahead. Stock futures had a positive tone to them overnight, following through on last week’s optimism following dovishly construed comments from the central bank. The VIX is trading below 14 this morning, while the dollar index is trading near 104.9. Yields on 10-year Treasuries are trading near 4.47%, while yields on 2-year Treasuries are trading near 4.79%. Crude oil prices are nearly 1% higher after surviving a successful test of chart support at the 100-day moving average, while the grain and oilseed sector was mostly weaker overnight.

Holidays have been good for China’s economy. Its May Day holiday period saw another boom for tourism. Consumer anxious about buying property are still willing to spend money on near-term pleasures of tourism, concerts and restaurants. A total of 1.36 billion passenger trips were recorded during the latest holiday, which was dramatically higher than the 274 million trips recorded during last year’s May Day celebrations. Travel agencies reported double-digit growth in hotel bookings versus last year. Robust spending was also seen at the box office, as well as in the retail sector. Yet, property sales in China’s largest 25 cities saw another 21% month-on-month decline in housing sales in April, which represented a nearly 39% year-on-year decline. The inventory of unsold housing continues to creep higher, reflecting a lack of progress in turning this vital sector around. We have seen encouraging signs of growth in smaller and export-oriented companies within China, but data for the broader range of firms across China continue to show sluggish economic growth.

El Nino is dead, or at least the most recent one seems to have met its end, with sea surface temperatures in the central equatorial Pacific slipping into neutral-warm territory in recent days. The latest phase of the ENSO cycle saw a rapid drop into neutral territory, which might cause some to argue that we are headed for a rapid move into a threatening La Nina. But that doesn’t appear to be the case, with many of the models easing back on their La Nina forecasts, pushing back the cool phase of development into the fall of the year. The new euro monthly model forecasts wait until late summer / early fall to move us into La Nina territory, which would be more of a factor for South America’s growing season, and less of a factor for the Midwest growing season, if it verifies.

The new euro-monthly forecasts that came out over the weekend still have a warm to hot bias, although they moderated or cooled somewhat from the previous month’s run, with more rain in the outlook as well. Moderation of temperatures was more pronounced in the second half of the summer for the Midwest. There’s still a bias for warmer than normal temperatures, but the increased moisture in the forecast would suggest that the above normal average comes more from higher overnight temperatures than from higher daytime highs. This can create greenhouse growing conditions, unless the overnight temperatures are too warm, not allowing the corn plant to rest at night, as we saw in 2010. That’s not necessarily the forecast at this point, but it is something that we’ll need to monitor. Corn performs best when overnight lows dip below 65° F at night from pollination through grain fill. Both the European monthlies and NOAA’s CFS monthlies show this warm bias with normal to above normal rainfall for the summer, increasing confidence in the forecast at this point.

Another round of storms is expected to impact the Midwest the next couple of days, but the overall pattern shows signs of changing to a more favorable one in the last half of this week, continuing through the 6- to 10-day period as well. Midwest temperatures are expected to be mostly normal to above normal over the next couple of weeks. That means that we should be able to make rapid planting progress once again as we move into mid-May, with good soil moisture for supporting growth. Put that together with the above forecasts for the summer, and it’s difficult to expect anything other than USDA to go with the corn and soybean acreage that it reported in its March planting intentions survey when it releases its first 2024-25 balance sheets on Friday, while also using the trend yields that it revealed in its Outlook Forum in February. That would be expected to give us a 14.88-billion-bushel corn and 4.45-billion-bushel soybean crop. Allowing modest growth in demand still yields larger ending stocks for the coming marketing year, which might be a sober reality for some on Friday. Those stocks are not expected to leave us immune to the possibility of weather scares this summer, although the above tends to discount those risks for now. USDA’s May WASDE crop report typically sets the tone for the markets through the summer, so its numbers are expected to be pivotal to price action going forward. One piece of that puzzle though will be USDA’s South American production estimates for corn and soybeans, with increased focus on Argentina’s crops.